Regulators must begin to gauge challenges FB's Libra may raise

FACEBOOK'S recent announcement that it would launch a digital coin called Libra is making waves. On the face of it, the concept seems compelling. Libra is a digital currency, but there are distinct differences from cryptocurrencies like bitcoin, even as it also uses blockchain technology.

In its white paper, Libra is envisioned as a "stablecoin" backed by real assets - that is, "a basket of bank deposits and short-term government securities" - to be held in the so-called Libra Reserve. Its mission is couched in altruistic fashion. It believes that through a process of collaboration, using open-sourced blockchain, Libra would create scale, avoid the volatility of cryptocurrencies today, and open up access to financial services among the "unbanked" who need such services the most. Libra has assembled an independent, not-for-profit organisation called the Libra Association which is to provide a framework for governance.

So far responses to Libra have been not just sceptical but also outright hostile, as demonstrated by the US lawmakers' grilling of Facebook cryptocurrency head David Marcus over the past couple of days. Days earlier Federal Reserve chairman Jerome Powell said he has "serious concerns" about Libra; US Treasury Secretary Steve Mnuchin called the development a "national security issue". Already some US lawmakers are seeking to outlaw Libra even before it gets off the ground. The biggest fear is that Libra could destabilise currencies and upend the global financial system as we know it today. It would also catapult Facebook into the league of institutions deemed "too big to fail". On its part Facebook has not endeared itself to US lawmakers; it is up against a massive deficit of trust due to its inability to get on top of its data and privacy issues.