He is concerned that Facebook’s cryptocurrency could be used by fraudsters who are part of shadow economy. Stiglitz said “The last thing we need is a new vehicle for nurturing illicit activities and laundering the proceeds, which another cryptocurrency will almost certainly turn out to be.”
The economist accepts that the present financial system does not face competition with regard to payment processing and due to the dearth of competition, US clients pay several times higher than what would be a reasonable charge for such a service.
According to him, a better business model for Libra would be to retain the interest paid on the assets that back the stable coin.
Stiglitz also opined that it is not wise to deposit one’s holdings when there is benefit in the form of interest. He said
“People who engage in nefarious activities (possibly including America’s current president) are willing to pay a pretty penny to have their nefarious activities — corruption, tax avoidance, drug dealing, or terrorism — go undetected. […] If this is Libra’s business model, governments should shut it down immediately.”
As another option, Stiglitz says, Libra could benefit from transaction related information. Stiglitz, however, has no faith in Libra’s administration, as “Time and again, Facebook’s leaders, faced with a choice between money and honoring their promises, have grabbed the money.”
In support of his argument, Bank of Japan Official stated that Libra manipulates the financial system. The central bank official further stated that Facebook’s Libra would be easily “piggybacking for free on a financial system that takes heavy costs” to sustain, and government officials are afraid of its impact on financial stability.
An anonymous official of the institution also provided his opinion on the project:
“It will move money into an absolutely virtual world, so it is completely different than other forms of digital payment.”
The central bank’s governor Haruhiko Kuroda stated that he wish to have a “keep careful watch” for an increase in the use of cryptocurrencies for payments and its effect on financial stability.
The report further stated that the funds generated by selling Libra are used to acquire a bouquet of fiat currencies and short-term securities sold by government. Nikkei has pointed out that the decision to avoid linking Libra to any specific fiat currency is mainly to circumvent domestic regulation of any country.
Additionally, as users do not receive any interest on their assets that back their Libra holdings, raising or lowering interest rates to implement changes in monetary policy will not have much of an effect. Notably, more than 30 associations have signed a request calling Congress and regulators to employ and official suspension on Libra development.
Furthermore, a survey by financial services firm Jefferies found that US users may avoid using Libra due to lack of trust.