Fed governor has said that Facebook’s Libra could pose risks to consumers due to a lack of clarity over their rights.
October 17, 2019, | AtoZ Markets – One of Federal Reserve governors, Lael Brainard has called out Libra on Wednesday, stating the Facebook-led project must overcome regulatory barriers before the stablecoin is allowed to make its first transaction.
Facebook Libra could be a threat to fiat currency
While delivering a speech on Wednesday, at the Future of Money in the Digital Age forum in Washington, D.C., Brainard outlined how Libra raised complex regulatory issues that at best could delay its anticipated 2020 launch.
If left unresolved, these numerous regulatory barricades could place consumers and the international banking order at heightened risk, she said.
Brainard sees great potential in the success of stablecoins that can, perhaps, rival central bank-issued cash.
“If a large share of domestic households and businesses come to rely on a global stablecoin not only as a means of payment but also as a store of value,” it could impact central banks’ balance sheets, Brainard said.
She further added that Libra is in a unique position to accomplish this based on its 2.7 billion user base. However, for all those potential users, Brainard cast doubt that regulatory answers were there.
Facebook libra consumers rights remain opaque
Brainard also stated that consumers’ rights remain opaque as they might not understand their digital wallet rights. The same is true with regulators who have built a firewall of consumer protections around traditional bank accounts, from insuring deposits to holding financial institutions liable for fraud.
“Not only is it not clear whether comparable protections will be in place with Libra, or what recourse consumers will have, but it is not even clear how much price risk consumers will face since they do not appear to have rights to the stablecoin’s underlying assets.”
Libra’s plans to be “opaquely tied to a basket of sovereign currencies” further complicate matters. This is because it is unclear what right users and holders would have to those underlying assets if any.
She concluded by saying:
“It should be no surprise that Facebook’s Libra is attracting a high level of scrutiny from lawmakers and authorities.”
As AtoZMarkets earlier reported, the Group of Seven (G7) nations have reportedly drafted a report which says that “global stablecoins” pose a threat to the global financial system. Nevertheless, the executive leading the initiative, David Marcus, believes that the project will take off soon once there are more backers.
Last week, five firms, including Mastercard and Visa, withdrew their support from the Libra Association. The reason has to do with the negativity from regulators surrounding the proposed project.
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