Facebook’s new cryptocurrency, Libra, is facing serious questions from central bankers around the world.
Earlier this week, Facebook, Inc. (NASDAQ: FB) released an ambitious plan detailing the characteristics, uses, and goals of its new virtual currency. This instantly garnered regulatory pressure from both politicians and lawmakers.
Some politicians claim the Company is too ambitious with their new currency, calling Facebook a “shadow bank.” Bruno Le Maire, Finance Minister of France, said that Libra could become a “sovereign currency.”
“There are a lot of regulatory issues that need to be addressed, and they’ve got to make sure there’s a solid business case,” said Philip Lowe, Governor of the Reserve Bank of Australia.
Legislators in the U.S. and the European Union are working to push back Facebook’s Libra project as they believe the Company will gain too much control over a global currency. There also exist many risks that come with establishing Libra, the most prevalent one being how susceptible it would be to hackers. Cryptocurrency has a history of being hacked, costing investors millions of dollars in losses.
Although Libra is backed up by high-profile financial institutions, tech firms, and a basket of securities, it is not insured by a government-backed agency. The U.S. Senate Banking Committee recently called Facebook in to discuss its goals for Libra.
Libra can also be interpreted as Facebook’s bold attempt to enter the financial services industry. This, however, is not the first time Facebook has done so. Facebook launched its own credit card a couple of years ago, which ultimately ended up failing, despite a large marketing campaign.
In the case that Libra survives the regulatory onslaught, it could be a game-changer for the banking industry.