Federal Director Warns Libra and Consumers to Red Flags

Facebook’s cryptocurrency, Libra, is under pressure from global central banks and regulators, which has also delayed its launch from the first quarter of next year to June. Lael Brainard, director of the US Federal Reserve, attended an event in Germany yesterday, pointing out that Libra has core legal and regulatory challenges, especially the price risk that users will face.

In her speech at the event, Brainard mentioned that Libra used a basket of currencies as price support behind the scenes. It is still not clear what the problem is and this model has not been proven to be feasible. At the same time, within this cryptocurrency network, the rights and responsibilities of market participants and the management of reserves are lacking a clear direction, which may exacerbate the problem in the future. If Libra finally hits the market, more than a third of the world’s population will be tied to privately issued digital currencies and a basket of currencies.

“Without the necessary guarantees, global stablecoins will pose risks to consumers, and it is not yet known exactly how much price risk consumers face because they do not have the rights to the assets behind stablecoins.” Brainard believes Libra and other stablecoins are in stark contrast to the financial systems established over the past decades. Therefore, before any global payment network is launched, it should meet high legal and regulatory requirements.