South Korea’s FSC sees financial instability risks with Facebook’s Libra

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  • FSC says that Libra threatens the bank’s solvency as well as their loan reserves.
  • Lack of proper regulations could encourage money laundering using Libra.

The recently announced Facebook digital asset referred to as Libra continues to attract regulator interest cross the world with South Korea’s Financial Services Commission (FSC) being the latest to comment on the risks associated with it. The FSC July 5 trends update tries to put into consideration what could happen “If 2.4 billion Facebook users worldwide transfer one tenth of their bank deposits to Libra.”

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The trend update reckons that if such a scenario occurs, then the bank’s solvency diminishes as well as the loan reserves. This in turn would pose a threat to emerging markets as funds are relocated from the various countries. According to CoinDesk the FSC:

“Raised concerns that bank runs could occur during financial or foreign exchange crises, as people move their national fiat currency to Libra. The simplification of money exchange and remittances through Libra is also expected to limit central banks’ ability to control international capital movements. The effectiveness of monetary policy would also be limited if Libra becomes widely exchanged for central bank currency.”

The FSC also said that without proper regulations, Libra could be haven for money laundering. Moreover, Facebook’s Libra working as a global money remittance means could greatly affect bank’s revenues from the transactions in South Korea.

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