An analysis issued stating that ‘Libra’, a virtual currency which Facebook announced to launch next year may cause a bank run.
On July 8th, Korea Financial Services Commission has announced a press release called ‘Understanding of Libra & Related Trends’. The commission cleared that the document is not an official opinion of the commission, but is only for helping publics understand the issue.
The commission analyzed that Libra will have a negative effect on the financial system, mainly including financial stability, anti-money laundering, and monetary policy.
Hypothetically, if 2.4 billion Facebook users transfer 10% of their bank deposits to Libra, the accumulated reserve of Libra will exceed 20 trillion USD which may a have a negative impact on bank solvency and reserve.
In addition, the capital outflow may also be a threat to a new market with a weaker international balance of payment.
The report added that in case of a financial or currency crisis, there may be a sort of bank run which make the legal tender move to Libra.
Korea FSC also forecasts, “Free exchange between the legal tender and Libra and rapid overseas transfer may limit the policy measures regarding the international capital movement. Libra will be exchangeable to different legal tender. It may lead to massive capital outflow or increased currency volatility in case of economic crisis.”
For monetary policy, Libra may limit the effects of the policy because it can be replaceable with the legal tender.
The impact on the banking industry is presumed to be negative as well.
The commission explained, “If Facebook decides to purchase the financial products such as bonds instead of depositing funds in a bank, the financial status of the banks may be intimidated, and the overseas transfer profit of the banks may be intervened because Libra provides overseas transfer practically without commission fee.”
It is analyzed that the consumers may be also affected negatively when the value of the legal tender that Libra holds as its reserve rises. Libra will also be excluded from the deposit insurance provided by the government.
Additionally, there is an opinion that the nature of Libra is obscure because the way it guarantees its value seems unknown at the moment, with the specific not being announced.
However, the commission evaluates that Libra has better possibilities of success compared to other virtual currencies released.
Libra is limiting its own price fluctuation as a ‘stable coin’ by ensuring the value with reserves whereas other virtual currencies have high volatility.
In addition, the commission forecasts that as the biggest social network platform, Facebook may form Libra association with other global corporations of various fields to secure the wide-use versatility.
Major supervisory offices mostly showed negative stances on Libra. Jerome Powell, the chairman of the Federal Reserve Bank(the Fed) said, “The Fed will keep a close eye on Libra, and the expectation level on the restriction compliance and the consumer protection will be very high.” Her Majesty’s Treasury, Financial Conduct Authority(FCA) and the Bank of England will cooperate to monitor the plan of Facebook. In France, the G7 task force in respect of virtual currencies will be formed to examine how the virtual currencies will react to the restrictions such as the anti-money laundering law and the consumer protection law.
Kim Yewon(2019.07.08.) “리브라, 금융안정성 저해해 뱅크런 유발할 수도”
Yonhap News. Retrieved from http://news.einfomax.co.kr/news/articleView.html?idxno=4037803