With Facebook entering the cryptocurrency arena, many banks are worried that their days are numbered.
Facebook Coin Is Scaring Traditional Banks
Facebook Coin – or Libra as it’s called – is allegedly designed to serve as a means of payment for users who are seeking to garner the services and products they need to survive each day. They’ll be able to use the currency to purchase these items either through Facebook or merchants’ websites that offer Facebook login options.
The purported goal is to give users their financial independence and ultimately remove banks from the equation, which have a little more control over users’ monetary statuses. However, several banks are presenting the argument that they’ve only just recovered from the Great Recession in 2008. Facebook Coin could potentially pave the way for even further damage to the global banking system and bring about the end of traditional finance all over again.
One of those banks is the Bank for International Settlements (BIS), which acknowledge the benefits of Facebook Coin but suggest that privacy issues are likely to arise from the coin’s existence. Hyun Song Shin, the economic adviser and head of research at the bank, explained in an interview:
The aim should be to respond to big techs’ entry into financial services to benefit from the gains while limiting the risks. Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy and data privacy regulation.
These words come just days after Facebook co-founder Chris Hughes expressed concern that the company’s entry into the cryptocurrency arena could give it too much power – a thought he considers “frightening.” Hughes comments:
If even modestly successful, Libra would hand over much of the control of monetary policy from central banks to private companies. If global regulators don’t act now, it could very soon be too late.
Shin argues that while cryptocurrencies are up-and-coming forms of financial technology, the stability of digital assets are still questionable. He acknowledges that Facebook Coin will likely bring lower transaction fees to users, though cryptocurrency doesn’t have the established reputation of traditional finance.
In addition, he’s concerned that the level of competition crypto and related monetary tech brings to the table will be too much for traditional banks. This is a space that allows people to utilize their mobile phones and similar devices to make payments, access their accounts and move money – something banks have seemingly fallen behind on.
The End of an Era?
The use of Facebook’s Libra and other cryptocurrencies could potentially bring about the end of the current global financial infrastructure while putting pressure on the shoulders of an arena that’s not fully established as of late.
Shin is confident the entry of Facebook to the monetary space will enforce quick decisions from financial regulators and policymakers to keep banks intact.