In economic turmoil, those in power in governments and finance commissions need to pay close attention to Facebook’s strategy to release a crypto coin.
Adding to the consequences of the pandemic, there is another economic downturn looming. Economic pros are forecasting more trouble that is fast approaching, seeing how the global financial state is still recovering from the blow of 2008. We are now in a deep curve of little growth. Financial regulators need to be warier with the way local and worldwide marketplaces are behaving, and they need to act soon.
Last year, China showed it was gaining traction in establishing its own crypto since Facebook was fast on track to release its own Libra. Facebook stated that the aim was to reinvent cash for the new age, developing a worldwide finance system on the basis of its own coin.
The media showed worry over the fact that information rendered private will be collected with this clash; I believe that regulators also need to deal with the grave problems of regulation since the world is so unstable. This seems even more urgent as digital payment types and currencies are more important each day because of social distancing.
This alerted state stems from the info that China, the globe’s 2nd economic power, is still trying to gain on Facebook by issuing a crypto-coin since they view Libra as a risk. If Libra is indeed so, then regulating entities must state this out loud and act responsibly instead of moving slower and pushing the economy into more depression.
Some of the more obvious problems, though, should move the USA monetary and financial regulators overseeing Factbook’s activity, like the Fed, to do something about Libra. To gain a better picture of how a digital coin can put in jeopardy the state of the economy, just pit Libra’s strategy against BTC, and you will see how fast and volatile Libra’s growth and impact can be.
Seeing how strong Bitcoin is, Libra could simply become too big to fall. At the moment, the marketplace capitalization of BTC is circa 190B dollars, and the worth of the thirty most valuable traded cryptos goes over 1/3 of the marketplace capitalization of Facebook. Also, approximately five percent of American citizens are investing in BTC. If BTC all of the sudden became regulated or fell down, or found itself in a situation where it had limited operability, then this would have some hefty consequences on the local financial system.
Facebook has more than two billion active users each month, and BTC has just seven million. If just one percent of Facebook’s active users invested in Libra, that would already go over the number of BTC investors. Thus, if users readily see the BTC as too big to fail, with a bailout call resembling one that was in place when one of the biggest BTC exchanges faced bankruptcy in 2014, then if Libra fell, it would really hit the economy at large.
That is why senators questioned Facebook’s leading figures in 2019 on this issue and on the creation of Libra. Though the hearing focused on the effects of the digital coin, senators were worried that Facebook would all of the sudden become like a bank. Some senators said that one of the bigger issues was that the firm could move its business’ aim to currency provision, and in that way, moving the too-big-to-fall problem from the heart of the financial industry and into the technological one.
Though Facebook walked away from Libra plans in April this year because stakeholders put pressure on them, choosing for Libra to be a virtual payment system instead of a worldwide monetary alternative, there are still worries about the wide-reaching tentacles of this project.
Considering the BTC situation, Libra could really have an impact on the financial system in ways we cannot predict. The inception of BTC already removed some power from central financial institutions to regulate the financial system because of a new tech procedure that regulations cannot control – the distributed leverage. Moreover, entrepreneurship, sectors, and services starting to accept cryptos as a payment strategy stopped the growth of central banks in terms of regulation, national currencies.,
Moreover, if other major corporations want to compete with Libra, what will become of the USA finance system? The four biggest USA firms have a marketplace capitalization that is around 1/4 of China’s whole gross domestic product. Seeing these numbers, a worst-case scenario could change the world as we know it in ways we cannot predict.
In line with this, during a Senate hearing in 2019, Jerome Powell, Federal Reserve Chair, expressed worries connected to the Libra project. He highlighted the consternation regarding financial stability and protecting clients, seeing the size of Facebook and the unexpected consequences that could occur if the currency enters the market.
Cryptocurrency-asset advocated, though, think that BTC could be a ticket out of the financial downturn, as its system is not connected to any country’s financial system. It may prove as an oasis for investors in volatile marketplace spaces. At the same time, Libra devs are advertising the venture’s aim of promoting economic independence and financial inclusion, in the end resulting in financial stability by enlarging client welfare and bringing up national economies.
Whatever the case is, innovation is welcome and is viewed with enthusiasm. Prudence, though, is something regulators need to work on, especially in these unprecedented times.
Since these are turbulent financial times that are only going to get harder over the winter, then regulators also need to be focused to the max on initiatives that could destabilize the financial system. Also, regulators need to monitor, comprehend and adjust fast to new tech initiatives, like the Facebook push with Libra, in order to have proactive knowledge of hefty financial projects before we are all doomed.