Facebook’s Libra has led a new breed of stablecoins, but critics warn that it could be vulnerable to failure in network stress periods.
On Sept. 5, JPMorgan released an analysis showing they lack the other payments systems’ short-term liquidity — meaning, that the growth might be faster than the network can sustain.
Exceeding network capacity
Analysts emphasized the substantial growth potential of stablecoin payment systems such as Libra to clients.
JPMorgan urges people to tread with caution when the networks cover a significant portion of global transaction activity.
He noted as follows:
“As currently designed and proposed, they do not take into account the microstructure of operating such a payment system. The risk of payment system gridlock, particularly during periods of stress, could have serious macroeconomic consequences.”
Negative yields risks to Libra
Collateral Fiat currencies in its reserve account income will back Libra. Unfortunately, the negative yields on most major currencies and a global monetary easing is another risk that JPMorgan noted.
“Any system that relies on reserve-asset income to fund operational and other ongoing costs becomes unstable in a negative yield world […] a fully negative yielding Libra reserve has become a plausible (some would argue likely) risk.”