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Facebook Libra Could Form ‘Shadow Banking’ System, US National Banks Claimed

By Katelyn James | October 2, 2019

Facebook stablecoin project Libra could possess the ability to form a “shadow banking” system, as revealed by the banks at the Federal Advisory Council (FAC).

The discussion between the US Federal Reserve and numerous major banks of the country revolving around Libra, has raised some issues towards the project, specifically about the possibility of a reduction in demand-deposit accounts, as well as bank payment volumes. 

Libra, along with numerous other stablecoins of the same kind, acting as one or multiple fiats-pegged cryptocurrencies, could potentially become an obstacle to the current business model employed by the banks, established upon the foundation of privacy, as reportedly claimed by the banks. 

With a note that the number of people using Facebook take up to more than half (52%) of the US population, particularly 170 million active users, as statistically measured last year, the bank drew a conclusion that Facebook could be establishing a digital monetary ecosystem, not within the standard boundaries 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.”

Furthermore, the banks alerted that Facebook’s Libra could have a negative effect on the monetary policy of the US, by having “potential to reduce the ability of states to monitor, manage and influence local economies.”

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