Bankers Call Facebook’s Libra A Threat to Financial System, Visa and MasterCard Likely to Step Out of Libra Association

Facebook is facing major hurdles every passing day with respect to the launch of its recently announced Libra cryptocurrency. After being grilled by the regulators in the last few months, bankers have issued a red flag to Facebook’s crypto project.

Some of the largest banking institutions told the U.S. Federal Reserve that Facebook’s Libra project aims to create a “shadow banking system” which poses potential threat in demand-deposit accounts along with the banks’ payment volumes.

In a joint statement to Bloomberg, the banks said: “Facebook is potentially creating a digital monetary ecosystem outside of sanctioned financial markets -- or a ‘shadow banking’ system. 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.”

Well, the U.S. is not the only country whose regulators have been going after Libra. Recently, a number of major European nations said that Libra poses threat to their financial sovereignty and they won’t let such projects proceed ahead.

German Finance Minister Olaf Scholz said: “A core element of state sovereignty is the issuance of a currency. We will not allow private companies to do it.”

Besides, SWISS financial regulator - Financial Market Authority (FINMA) has also casted doubts on the project. The Libra Association - a consortium of Libra’s founding members - is currently registered in Switzerland. However, the FINMA chief Mark Branson said that the looking at the other nations stand within the European Union, the Swiss cannot alone allow project of such massive scale.

Even the French Finance Minister Bruno Le Maire said: “It [Libra] would be a global currency, held by a single player, which has more than two billion users around the world. The monetary sovereignty of states is under states is under threat.”

Another Bloomberg report states that existing members of the Libra Association like Visa, MasterCard and PayPal are allegedly planning to pull out of the Libra project. These major financial giants said that they wish to have good relations with the regulators over the long term. With Facebook engaging in constant discussions with the regulators, these companies have turned skeptical of the project’s prospects.