Facebook’s plan to launch its own cryptonomy poses risks to the international banking system, according to the Bank for International Settlements (BIS). Representatives of the institute believe that global regulators need to take measures to limit these risks.
Major technology companies such as Facebook, Amazon and Alibaba have entered the financial services market to speed up transactions and cut costs, especially in developing countries.
BIS representatives, however, are of the opinion that there is a risk that they could undermine the stability of a banking system that has just returned after the 2008 collapse.
The international banking system threatened by Facebook
Based on analyzes conducted by several technical experts, BIS said that although potential benefits could be gained, the adoption of digital coins outside of the current financial system could reduce competition and create privacy issues.
“The purpose of the authorities should be to respond to the entry of large companies into financial services. We should make sure that we will benefit, while limiting the risks. Public policies must be based on a more comprehensive approach, based on financial regulation, competition policy and data privacy regulation “,
said Hyun Song Shin, economic adviser and chief research officer at BIS.
The BIS warning comes just days after Facebook announced it will launch its own Libra digital bank in 2020. This will allow billions of users to make financial transactions across the globe in a move that could undermine the international banking system .
Chris Hughes, co-founder of Facebook, also voiced concerns about the Libra project. He argued that the new Facebook cryptomonade could transfer too much power to private companies.
“Even with modest success, the Libra would transfer much of the monetary policy control from central banks to these private companies. If the world regulators do not act now, it could be too late. “
Shin argued that decision-makers need to look at whether the current system, which allows banks to charge higher commissions and accumulate reserves to protect themselves during times of crisis, is preferable to a more competitive system where transaction costs are lower, but the strength of the financial system is lower.