Libra Creates Shadow Banking System
Facebook’s Libra to Create ‘Shadow Banking’ System
October 2, 2019
Libra Creates Shadow Banking System
Facebook’s Libra to Create ‘Shadow Banking’ System
October 2, 2019

Facebook’s crypto project Libra is going to create a “shadow banking” system, according to the banks at the Federal Advisory Council (FAC).

U.S. banks fear Libra would reduce payment volumes

On September 30, it has been reported by Bloomberg that after the United States Federal Reserve asked some of the nation’s largest banks about Libra, the banks expressed their negative perspective towards the project, outlining the risks of potential decline in demand-deposit accounts and bank payment volumes.

However, earlier in September, during a quarterly meeting of the FAC, the banks reportedly said that Libra and similar stablecoin projects, where a digital coin is pegged to an underlying value consisting of one or more fiat currencies, also pose a possible challenge to the bank business model built on privacy.

Observing that about 52% of the U.S. population, or 170 million people, were considered active Facebook users in 2018, the banks suggested that Facebook is potentially creating a digital monetary ecosystem outside of sanctioned financial markets, or a “shadow banking” system.

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The banks argued:

“As consumers adopt Libra, more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation may further expand into loan and investment services.”

Similarly, the banks warned that Facebook’s Libra could impact national monetary policy, mentioning the “potential to reduce the ability of states to monitor, manage and influence local economies.”

The FAC, which includes 12 representatives of the U.S. banking industry, consults with and advises the Fed Board on economic and financial issues within the Board’s jurisdiction.

Thus, on September 26, Bloomberg reported that Facebook is planning to get its Sheryl Sandberg, the Chief Operating Officer in front of the House Financial Services Committee in October to demonstrate on Libra and its plans to launch the stablecoin in 2020.

Source: Cointelegraph and Bloomberg


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Ishita Bora

Ishita Bora is a Senior Content Creator at Digital Notice Media Labs with experience of 1.5 years. She has completed her Master's Degree in Language and Linguistics in 2019 from Gauhati University, India. Her interest lies in blockchain technology and cryptocurrency space. She loves writing about blockchain and other blockchain-related articles.