Facebook's development of a cryptocurrency suitable for general use and online purchases has been branded a "serious concern" by US regulators.
Known as Libra, Facebook's aspirations in the cryptocurrency realm involves the creation of a virtual coin backed by major financial institutions and regulated through a blockchain developed by Facebook subsidiary Calibra.
In the past, cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) have been associated with underground trading, anonymous trades, and a turbulent marketplace in which the value of a digital coin can skyrocket or spiral at a moment's notice.
However, if backed by fiat currency, a digital asset may not be so volatile, given that there would be central authorities managing the cryptocurrency.
According to Facebook, Libra, if backed globally, will be tradable by "almost anyone with a smartphone" and could be used for paying bills, purchasing tickets, and more.
The social networking giant wants to debut the coin in 2020 once financial partnerships are cemented in place and the proposed wallets used to store Libra are established with the same security measures as today's traditional bank accounts.
However, the US Federal Reserve wants Facebook to put its foot on the brake until a number of concerns have been addressed.
As reported by Reuters, US Federal Reserve Chairman Jerome Powell said on Wednesday that Libra "cannot go forward" until the company submits to an examination of the regulatory challenges the project will create.
During a session with the US House of Representatives Financial Services Committee, Powell said Libra has raised "many serious concerns" relating to privacy and consumer protection.
In addition, it is not guaranteed that Libra will be as financially stable as fiat currency, and so there may be inherent risk caused by consumer understanding of how cryptocurrency works and potential market volatility, no matter which financial institutions back the coin.
Money laundering, too, was mentioned by Powell as a problem. Cryptocurrency can be used to launder funds by a method known as "washing" in the Dark Web, in which fraudulent transactions or theft can be masked by transforming tainted cryptocurrency into clean coins.
Cryptocurrency, on the whole, has posed a challenge to regulators in countries including the US, UK, South Korea, and China. While some countries have welcomed cryptocurrency with open arms -- such as Venezuela -- others, including China, have not looked at virtual currency with a friendly eye.
As crypto assets do not fit well with existing laws designed to regulate and protect traditional currency usage, Libra's potential impact on a global platform as vast as Facebook could prompt regulatory chaos for lawmakers worldwide.
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"Facebook has a couple billion-plus users, so I think you have for the first time the possibility of very broad adoption," Powell said. "It needs a careful look, so I strongly believe we all need to be taking our time with this."
Singapore, too, has concerns over the Libra project. Earlier this week, officials demanded that Facebook provide a more thorough explanation of Libra in order for the country to decide whether regulators need to investigate the proposal.
However, Singapore's Monetary Authority of Singapore (MAS) said it is "open" to financial innovation, on the proviso that Facebook does not pose a threat to the local financial ecosystem.
Previous and related coverage
- Facebook debuts Libra cryptocurrency: a Bitcoin killer?
- Singapore wants more details on Facebook Libra before deciding on regulatory response
- Woz wants you to get off Facebook right now
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