A report prepared by the G7 group says that until such time that Facebook is able to prove the safety and security of its Libra cryptocurrency, the planned digital currency must not allowed to go ahead, claimed a report published by BBC.
Analysts see this as a big blow to the aspirations of Facebook to transform Libra into the largest crypto currency of the world as Libra has been viewed to be a potential source of risk to the global financial system by the world’s biggest economies.
Nine major risks posed by such digital currencies have been outlined in the draft report, said BBC.
The report claimed that the Libra project might not get approval from regulators even if the firms supporting Libra are able to address the concerns.
It was just a few days ago theta the Libra project was hit hard by the exit of some of its largest corporate backers including payments giants Mastercard and Visa. The quitting companies cited regulatory uncertainty surrounding the project as their reason for exiting.
Senior officials from central banks, the International Monetary Fund (IMF) and the Financial Stability Board, that is responsible for coordinating rules for the G20 economies, were among the G7 taskforce that prepared the report.
It is important that those companies and firms that support digital currencies such as Libra have to first be legally perfect, have policies and measures to safeguard the interest of consumers and make sure that they are able to prevent the digital currencies being used for financing terrorism and to launder money.
The report however did not point the finger only at Libra. The report is slated to be presented at the IMF annual meetings this week and claims that a range of potential issues and posed by “global stablecoins” with the potential to “scale rapidly”.
Compared to digital coins such as Bitcoin, the nature of stablecoins like Libra are different because they are pegged and attacked to established currencies such as the dollar and euro.
The report states that problems such as setting of interest rates for policymakers is posed by global cryptocurrencies like Libra even though they are pegged to established currencies to limit big volatility in their value. Further, competition among other providers could be stifled by the Libra, states that report and adds that the digital currency can even be a risk for financial stability if there is a sudden loss of confidence in the digital currency by its users.
“The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed,” the draft report says.
“Addressing such risks is not necessarily a guarantee of regulatory approval for a stablecoin arrangement,” the report says.
Its cryptocurrency project of Facebook is being increasingly scrutinized internationally.
The introduction of “global stablecoins” poses a host of regulatory challenges, warned a separate FSB report published on Sunday.
(Adapted from BBC.com)