According to the bankers at the Federal Advisory Council (FAC), Facebook’s Libra will potentially create a shadow banking system.
The Federal Reserve wanted to know the opinions of several of the largest United States banks about Facebook’s upcoming project. As expected, the majority of the banks shared a highly negative stance towards the project and heavily outlined the potential decline in demand-deposit accounts and bank payment volumes.
Stablecoins like Libra are basically tied to an underlying value of one or more fiat currencies. This is an incredible challenge towards the banks since their highly outdated models are built on privacy.
Shadow banking is suddenly a threat to the bankers
The banks highlighted that in the United States, roughly 52% of the population or 170 million people were active Facebook users. They believe that by launching Libra, Facebook will create a digital monetary ecosystem outside of the sanctioned financial markets. The representatives of the banks referred to this as “shadow banking”.
Ironically enough an actual statement of a banking representative was:
“As more and more consumers adopt Libra, many more deposits could migrate to the platform. This will effectively reduce liquidity and may potentially further expand into loan and investing services.”
Banks are beginning to understand that they absolutely do not want to share a piece of the pie with anyone, let alone a global social media giant with over 2 billion active users.
The banks later mentioned that Libra has a very real chance of impacting the national monetary policy. A large enough usage of Libra, would potentially reduce the ability of the state to monitor, manage and influence local economies, according to bank representatives.
Last month, Facebook revealed that its Chief Operating Officer (COO) Sheryl Sandberg would in front of the House of Financial Services Committee in a month’s time and testify on Libra and the plans to launch it in 2020.
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