U.S. Fed Lael Brainard has warned about the apparent lack of the Facebook-led Libra project

Lael Brainard, governor of the Federal Reserve, launched a broadside against Libra of the Facebook cryptocurrency project on Wednesday, saying it faced a “core set of legal and regulatory challenges”, including clarity on how it will be tied to some basic assets.

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Image via pixabay

In a speech prepared for an event in Germany, Lael Brainard said that there should be more clarity on the basket of currencies under the stablecoin and its model has yet to be proven.

According to Brainard’s draft remarks for a conference in Frankfurt, stablecoins issued on a smaller scale, including Gemini and Paxos, among others – already exist. But the risks associated with Libra are particularly high due to the size and speed of the project adoption, as well as its main supporter, the social media giant Facebook.

Nearly one-third of the world’s population are active users on Facebook, and Libra’s potential adoption will fundamentally change the global payment system.

Lael Brainard mentioned that the risks “could be exacerbated by the uncertainty about the reserve management and the rights and responsibilities of various market participants in the network”.

U.S. Federal Reserve Governor, Lael Brainard

The Libra Association has previously said that the token will be backed by collateral, including US dollars, euros, yen, pounds sterling and Singapore dollars, with the USD accounting for the largest proportion. The association consists of companies and other entities that put assets in support of this currency.

The reach of Facebook has made the United States and other global regulatory agencies worried about the impact of the project if it took place in a big way.

She contrasts the nascent stablecoin scenario with the “strong protections” developed over decades that consumers are now expecting on bank accounts and related payments.

In October, Brainard made similar comments about Libra, saying that the project could impact the central bank balance sheets if it reached scale.

Brainard raised a series of red flags

Lael Brainard has issued a warning that a type of stablecoin proposed by Facebook (such as Libra) could affect financial and consumer stability while providing a potentially valuable tool for criminals.

Brainard holds up a series of red flags, starting with the consumer risk that is used to secure banks that offer fraud protection and government deposit insurance. In addition, she said that digital currencies could have important implications for financial stability.

She added that a widely accepted digital currency, which is a version of the private or sovereign sector, could have significant implications for monetary policymakers in smaller economies.

Facebook Libra may represent a particular danger because this social network has a global reach.

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