The Federal Advisory Council (FAC) has claimed that Libra Facebook’s crypto project has the intention to create a “shadow banking” system.
Bloomberg reported on Sept. 30 that a couple of nation’s largest banks had negative views about the project, citing risks of bank payment volumes and potential demand-deposit accounts decline after an inquiry from the United States Federal Reserve.
During the FAC quarterly September meeting, the banks reportedly said that a digital coin value —seen in Libra and other stablecoin projects— is pegged to particular fiat currencies, thereby posing a possible challenge to the bank’s privacy business model.
In 2018, active Facebook users in the US were about 170 million people or 52% of the population. For that reason, Facebook might potentially —according to the banks — creating a “shadow banking” system or a digital monetary ecosystem that is outside of sanctioned financial markets.
They also added:
“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.”
Banks curious on local economies management
Facebook’s Libra’s potential to reduce states’ ability to monitor, influence and manage local economies could eventually have an impact on the national monetary policy, the banks have also warned.
The Fed Board’s advice and consultation regarding its jurisdiction about economic and financial issues usually emanate from The FAC — consisting of the U.S. banking industry’s twelve representatives.
Bloomberg reported on Sept. 26 that Sheryl Sandberg Facebook’s chief operating officer would appear in front of the House Financial Services Committee in October to give more light about the Libra project.
Libra is expected to be a permissioned blockchain digital currency — a stablecoin — which is pegged to various relevant sovereign currencies globally.