Facebook’s Libra Could Undermine Sovereign Currencies According to Former Bank of Japan Exec
A former employee of the Bank of Japan (BoJ) believes that Facebook’s Libra may threaten the impact of local monetary policies. Libra may reduce the overall effectiveness of monetary policies as well as weaken emerging markets currencies. Eventually, even though Libra might be delayed or even stopped, it is impossible to prevent other business from developing similar projects. This according to a press release, August 2, 2019.
The Ambitious Plan
In the aftermath of its announcement in June 2019, Facebook’s Libra has been raising concerns around the world. Facebook plans to grant financial access to almost two billion people globally through its stablecoin project, which is reportedly underway and will likely be launched in the first half of 2020.
Despite the high ambitions displayed in the whitepaper, Facebook’s Libra is under the attack of many global policymakers. Earlier this week, according to a CNBC report, the project could be delayed or might not even happen at all.
Weakening Global Monetary Policy
In a press release from Yahoo News, a former Japan central banker contemplates the broader impacts of Libra. Hiromi Yamaoka, former head of the Bank of Japan division managing payment and settlement systems, has argued that Libra will likely reduce significantly the impact of the monetary policies undertaken by central banks. According to him, if Libra achieves its ambitious plan to gain a meaningful adoption, it will weaken the control over monetary and banking policies.
Moreover, if Libra’s adoption manages to overcome that of the sovereign currency in a particular nation, it will inevitably affect the country’s monetary policy and will almost certainly trigger a capital flight towards country whose assets belong to Libra’s reserve, as it provides users with a very simple way to exit their local monetary ecosystem.
According to Yamaoka, the phenomenon shouldn’t affect countries whose currency enjoy a powerful reputation in the global markets. However, it is far more likely that Libra impacts those emerging countries whose currency does not enjoy the same level of trust both locally and abroad.
Impact on the Global Market
Another argument raised by Yamaoka regards the basket of assets that will compose Libra’s reserve. According to the whitepaper, Libra will be backed by a reserve of real assets such as bank deposits (fiat currencies) and short-term government securities. Yamaoka warns that any shift in the composition of such reserve could potentially impact markets and particular exchange rates.
Yamaoka thinks regulators should coordinate a global initiative to address this new payment service that allows money to flow across borders this easily.
The G7 had already raised many concerns on Libra last month, but, even though Facebook project by face a delayed launch, it is impossible for regulators to stop other similar initiatives. “There’s no way to stop innovation”, Yamaoka concludes.