South Korea’s financial regulator has warned that Facebook’s recently unveiled Libra cryptocurrency poses a potential threat to the stability of financial systems.
As reported by CoinDesk, the Financial Services Commission (FSC) examined the potential consequences of a scenario in which 2.4 billion Facebook users worldwide transferred just a small portion of their bank deposits to Libra.
According to the FSC, a transfer of just 10% would cause the solvency of banks to diminish along with their loan reserves. This would in turn represent a threat to emerging markets due to the relocation of capital out of those economies.
The agency further raised concerns that bank runs could occur as people move their national fiat currency to Libra during financial or foreign exchange crises.
The simplification of money exchange and remittances through the social media crypto is also expected to limit the ability of central banks to control international capital movements. Additionally, monetary policy would see limited effectiveness in the event that Libra becomes widely exchanged for central bank currency.
In the absence of proper bank-like controls, the FSC expressed further concerns that Libra could be widely used for money laundering.
The FSC has also deemed the Libra project to be a major threat to the traditional banking industry, as South Korean bank revenues from remittances would be substantially reduced if the project were to allow virtually free overseas payments.
The agency nevertheless stressed that its report was intended to “facilitate understanding” on overseas trends, and did not signify an official opinion on the Libra project.
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