Fed's Brainard: Stablecoins like Libra could 'put consumers at risk' without safeguards

U.S. Federal Reserve Governor Lael Brainard said on Wednesday that Facebook’s proposed cryptocurrency Libra must overcome “a core set of legal and regulatory challenges” before it can be launched as a global stablecoin. 

According to Brainard’s draft remarks for a Frankfurt conference, 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 project’s proposed scale and speed of adoption, as well as its chief backer, the social media giant Facebook.

Almost one-third of the world’s population are active users on Facebook, she said, and Libra’s potential adoption would fundamentally transform the global payment system.

“Stablecoin networks at global scale are leading us to revisit questions over what form money can take, who or what can issue it, and how payments can be recorded and settled,” she said. 

Brainard emphasized that before Libra’s backers clarify key features of the proposed cryptocurrency, its exact level of risk remains unknown.

For example, they need to address if and how Libra will be tied to an asset, whether it will operate on a permissioned or permissionless network, and whether its target users will be commercial banks or regular consumers. These questions are crucial for determining Libra's practical implications when it comes to consumer protection as well as money laundering and terrorist financing.

“Without requisite safeguards, stablecoin networks at global scale may put consumers at risk,” Brainard warned. “Cryptocurrencies already pose a number of risks to the financial system, and these could be magnified by a widely accepted stablecoin for general use.”