Fed Governor Brainard Identifies Libra Threat, Says Regulatory Hurdles Abound

Federal Reserve governor Lael Brainard delivered a sharp critique of Libra, which would need to resolve many regulatory hurdles before going live.

AccessTimeIconOct 17, 2019 at 8:00 a.m. UTC
Updated Sep 13, 2021 at 11:35 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Federal Reserve governor Lael Brainard delivered a sharp critique of Libra on Wednesday, stating the Facebook-led project would need to resolve a number of regulatory hurdles before going live.

The Future of Money in the Digital Age forum in Washington, D.C., Brainard outlined how global stablecoin projects raised complex regulatory issues that at best could delay Libra's anticipated 2020 launch, and, if left unresolved, place consumers and the international banking order at heightened risk.

The problem? Stablecoins could be too successful – perhaps even rivaling central bank-issued cash.

“If a large share of domestic households and businesses come to rely on a global stablecoin not only as a means of payment but also as a store of value,” it could impact central banks' balance sheets, Brainard said.

Libra is in a unique position to accomplish this, with direct access to Facebook’s gargantuan user base - “a third of the global population,” she noted; and perhaps more, given that Libra plans to be available to individuals off the social network, too.

But for all those potential users, Brainard cast doubt that regulatory answers were there.

Those consumers might not understand their digital wallet rights, she said. And neither do the regulators who have built a firewall of consumer protections around traditional bank accounts, from insuring deposits to holding financial institutions liable for fraud.

“Not only is it not clear whether comparable protections will be in place with Libra, or what recourse consumers will have, but it is not even clear how much price risk consumers will face since they do not appear to have rights to the stablecoin's underlying assets.”

Libra’s plans to be “opaquely tied to a basket of sovereign currencies” further complicate matters because it is unclear what right users and holders would have to those underlying assets, if any.

In conclusion, she said:

“It should be no surprise that Facebook's Libra is attracting a high level of scrutiny from lawmakers and authorities.”

Debating the Digital Dollar

Her speech also touched on what an 'active' debate within the Federal Reserve: the merits of the U.S. issuing a "Central Bank Digital Currency" – a digital dollar.

Brainard, who has downplayed the need for U.S.-backed crypto in the past, continued to argue for that side, and on a number of levels: its implications on monetary policy, operational security risks, threat to financial stability. Even its ramifications on user privacy.

"If [a digital dollar] is designed to be financially transparent and provide safeguards against illicit activity, a central bank digital currency for consumer use could conceivably require the central bank to keep a running record of all payment data using the digital currency—a stark difference from cash, for instance."

But she said that Fed would continue to consider a digital dollar's pros and cons. Fifteen-hundred miles southwest of the capitol, another central banker, Federal Reserve Bank of Dallas President Rob Kaplan on Wednesday said the same.

Federal Reserve image via Shutterstock

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.