Lots of people worry that Libra will disrupt the financial system. But the real threat is quite different - and much worse.
In developed countries, people who don’t have access to banks are typically people with very bad credit histories, people who don’t have permanent addresses, people who don’t have identification , people with criminal records. They are unable to meet banks’ “know your customer” requirements, which are intended to prevent fraud and money laundering. Some of these people already use pre-paid cards as an alternative to bank accounts.
Libra would, however, make it much quicker and cheaper to exchange emerging-market currencies for dollars. This is not a bad thing, but unless exchanges are efficient, honest and widely available, people could find their money becoming trapped on the Libra platform. And this brings me to a third problem with Libra.
What about the threat Libra could pose to financial stability, or monetary policy? There is a not insignificant risk that in the event of a run on Libra, it will prove not to have the 100% reserve backing that it claims. If that happened, then people would not be able to recover some or all of their money. But that wouldn't necessarily mean central banks or governments would have to intervene.
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