Banks should worry about the potential behind Facebook's new digital currency
probably view holding Facebook’s new currency, Libra, as an alternative to putting money in the bank. If they see it as an attractive alternative, Libras could proliferate. If every Westerner held in Libra an amount equal to one-tenth of their bank deposits today, the new currency outstanding would be worth over $2trn. How worried should banks be?
Buying Libras will not shrink the volume of deposits in the banking system. Suppose a Briton uses money in his bank account to buy Libras. He would transfer pounds to the Libra Reserve or another seller, who would need a sterling bank account to receive payment. The deposit would live on in that account. In modern banking systems deposits can pass between accounts, be converted into cash, or be used to repay bank loans or buy assets from banks. They cannot simply disappear into non-banks.
Third, Facebook could yet decide to become a fully fledged bank itself. The firm says this is not in its plans, but the temptation will surely grow if Libra takes off. Facebook’s data already have immense potential to help with lending decisions. Although the Libra Reserve will be mostly independent of Facebook, the firm will offer its own digital wallet, Calibra, for consumers who want to hand over the key to their digital currency for safekeeping—and with it, their personal financial data.
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