Libra, Facebook’s global cryptocurrency project, could risk the stability of the global financial system if it is not subject to enough oversight from regulators, a body created after the financial crisis has warned.
Financial Stability Board chair Randal Quarles warned on Sunday that “global stablecoins” such as Libra could result in financial stability risks, consumer and investor protection issues, and cybersecurity threats.
Until now, cryptocurrencies did not threaten financial stability, Quarles told G20 leaders in a letter.
“However, the introduction of ‘global stablecoins’ could pose a host of challenges to the regulatory community, not least because they have the potential to become systemically important,” he warned.
The board is primarily concerned about the potential for stablecoins to replace domestic currencies, Quarles said.
The warning is the latest in a string of regulatory issues for the Libra project, which has faced a huge backlash from regulators and politicians since it was announced by the social media giant in June.
“Stablecoin projects of potentially global reach and magnitude must meet the highest regulatory standards and be subject to prudential supervision and oversight,” Quarles said.
“Possible regulatory gaps should be assessed and addressed as a matter of priority.”
On Friday, Mastercard, Visa, eBay, Stripe, and Mercado Pago announced that they would follow PayPal in withdrawing from the project.
Libra was billed by Facebook (FB) as a global currency, backed by a basket of assets, that will help millions of people around the world have greater access to basic banking services.
It was also expected to be usher in a new era of collaboration between the world’s major tech firms: Some 28 companies had initially agreed to join the consortium for the much-anticipated cryptocurrency project.
But increasingly regulatory scrutiny, including probes from the EU’s antitrust regulator and warnings from privacy watchdogs, has eroded trust in the project.
The Bank of England’s Financial Policy Committee, meanwhile, said that it would assess the risks of cryptocurrency projects like Libra.
“This is not learning on the job stuff,” Bank of England governor Mark Carney said in July. “It’s got to be rock solid from the start or it’s not going to start.”