Korea’s Regulatory Agency Issues Financial Stability Risk Warning Regarding Facebook’s Libra Coin

South Korea’s Financial watchdog, in a post published in Korean on July 5 indicated its concern about the new cryptocurrency, Libra recently launched by Facebook, stating categorically that if not checked could ultimately lead to financial instability in and around the cryptocurrency market.

A Time Bomb

Korea’s highest financial body, the Financial Service Commission (FSC) revealed that the potential of the Lira Coin is absolutely scary. The service commission looks at what may occur if the 2.4 billion Facebook users worldwide transfer just one-tenth of their bank deposit to Libra.

Should such a scenario occur, it would definitely affect both the traditional financial institution and the crypto community. This is because banks solvency would greatly diminish, as would their loan reserves, which will pose an automatic threat to emerging markets from the relocation of the capital out of those countries.

Furthermore, the agency is of the opinion that the simplification of Libra’s money exchange and remittances could limit the ability of most central banks to control international capital movements.

The risk of bank runs is also very evident, especially if there are financial or foreign exchange crises, as people move their national fiat currency to Libra.

Potential Financial Crime

The FSC is also worried that the new Libra project could rubbish all its effort into combating financial crime, as criminals could easily exploit certain loopholes to perpetrate financial crimes like money laundering and other fraudulent activities.

The agency stated that, without proper bank-like control, Libra will be very vulnerable, which is a major reason why large established institutions like JP Morgan and Goldman Sachs have refused to participate in Libra.

The report further indicates that the Libra project possesses a major threat to the traditional financial institution, because if such company like Facebook purchase a bond, instead of making a bank deposit with customer funds, it may worsen the financial condition of the bank.

And should in case Libra decides to allow free overseas payments, Trillions of South Korean Won in revenues from remittance would reduce drastically.

The agency, however, stated that Libra is more likely to be successful than other cryptocurrencies because of the publicity advantage it holds ahead of others.

Social media platforms like Facebook, Instagram and WhatsApp would definitely go a long way in pushing the Libra project. FSC, however, stated that the report is merely to facilitate the understanding of the press on overseas trends, and not its official stance on Libra.

The position of the FSC is quite understandable, as a financial crime in the crypto world is becoming very disturbing, and some institutions are now even teaching individuals and firms how to bypass sanctions.

Bitcoin Exchange Guide last year reported that the Crimea administration affirmed its readiness to establish a learning centre that will teach investors and individuals how they can use a distributed ledger-based crypto to avoid trade sanctions.

Although the motive might be noble, crypto criminals may soon abuse the privilege and use it to trade illegally and avoid regulations from authorized agencies

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Ogwu Emma
Ogwu Emma
Ogwu Osaemezu Emmanuel is a blockchain analyst with several years of experience in the cryptospace. He writes regularly for several leading cryptocurrency platforms

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer

2 COMMENTS

  1. I heard there are problems and questions with no official answer which trigger negative reactions of all regulators…

    • About US government i saw in post on coindesk such info :

      “In an open letter to Facebook, the committee asked the social networking company to halt all development of their new crypto stablecoin Libra until the Financial Services Committee and affiliated subcommittees hold hearings to determine how it would operate and what protections would be implemented for user privacy.”

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