Banks shouldn't worry about Libra's big promises
Considering the global reach of Facebook and the influence it has had on millions of people’s daily lives, many in the financial sector are understandably wondering if Libra too could be just as disruptive as the social media platform, which currently has 2.4 billion users.
In June, the tech behemoth Facebook announced that it would be launching its own stablecoin, Libra, with the goal to allow seamless transactions through its messaging platform and bring financial services to the 1.7 billion unbanked individuals worldwide.
However, Libra has faced significant scrutiny since its announcement, with Mark Zuckerberg recently having to defend the virtual currency before the House of Representatives as concerns about the tech giant’s previous behavior around privacy have riled regulators.
This comes alongside the news that seven companies out of the 28 “founding” partners are dropping out of the project even before the association is formally created. These included big players like PayPal, Stripe, Visa and Mastercard.
Perhaps those concerned about Libra’s impact on traditional banking structures don’t have to be so concerned after all. If you dig a little deeper below the surface the sheer amount of obstacles faced by new modes of currency to comply with legislation become apparent and make encroachment on traditional institutions still relatively unlikely. Not only are cryptocurrencies treading deep into the muddy waters of regulation, but they still lack the trust of most of the banked population.
Cryptocurrencies raise significant concerns due to their potential to be used for illegal activities such as the sale of illicit goods or money laundering, and it’s going to be a while until this image is shed. In fact, Federal Reserve Gov. Lael Brainard recently said that “Libra’s global reach would likely necessitate a consistent anti-money-laundering framework.”
Not to mention, the current banking system is built on decades of regulation and security that will take more than a few years to unsettle. The existing infrastructure is far too complicated to replicate quickly and Facebook’s Libra is already facing hurdles. Brainard continued to warn that if Zuckerberg wants his Libra project to continue, Facebook will need to abide by a core set of legal and regulatory challenges, including making promises on money laundering, consumer protection and privacy.
While financial institutions cannot ignore digital transformation, the rise of fintech, and the growing popularity of cryptocurrencies, we are still light-years away from regular account holders making the switch and transferring their savings into an often volatile digital space.