Former BoJ official warns Facebook's Libra could destabilise financial markets: report
02 Aug 2019
1
A free flow of cryptocurrencies like Facebook’s Libra across countries could undermine monetary policies of central banks and destabilise financial markets across the globe, a former Bank of Japan executive has warned.
Central bankers and policymakers across the globe have raised alarm over Facebook Inc’s ambitious plan to issue Libra, a new global cryptocurrency, that could weaken their control over monetary and banking policies.
“If Libra becomes more widely used than the sovereign currency of a particular country, the effect of monetary policy may be severely undermined,” a Reuters report quoted Hiromi Yamaoka, former head of the BOJ’s overseeing payment and settlement systems division as saying.
Yamaoka said the use of Libra could trigger or accelerate capital flight in countries where market trust in their currencies is low, as it gives users an easy way to move money out.
“It won’t be a big problem for countries that enjoy strong market trust in their currencies,” Yamaoka, who is currently a board member at IT consulting firm Future Corp. said.
“Still, the emergence of Libra would pressure policymakers to discipline themselves,” and ensure they don’t take measures that undermine the value of their currencies, he told Reuters.
Yamaoka oversaw the BOJ’s research into digital currencies and is well versed in cryptocurrencies.
Facebook’s plan is make Libra a parallel currency that would be backed by a reserve of real assets such as bank deposits and short-term government securities denominated in major currencies.
According to Yamaoka, any change in the composition of the Libra’s asset backing could affect exchange rates of global currencies, which could undermine policymakers efforts to maintain currency values.
The G7 finance ministers and central bankers warned last month that digital currencies such as Libra raise serious concerns and must be regulated as tightly as possible to ensure they do not upset the world’s financial system.
