Facebook has been looking into creating a new digital currency called Libra, to be released in 2020.
However, the social media giant's plans will have to remain on hold as financial regulators take a closer look. These regulators state that digital currencies in general, may pose a threat to the global financial system.
Major backers of the project, which include Mastercard and Visa, have pulled out of the project, stating regulatory uncertainty.
Facebook and Libra
Facebook's Libra project was launched earlier this year and was due to be up and running by 2020. As a digital currency, the project was focusing on people who lack access to a bank.
So far, reactions to the currency haven't been all positive. Concerns over how Libra would handle money laundering, financial stability, and consumer protection have been voiced. Terrorism financing has also been mentioned.
Another danger is that the already-registered 2.39 billion Facebook users could create an unstable global financial system — now a major concern.
G7 taskforce and financial regulators are on the case
A draft report put together by the G7 has laid out nine principle risks these types of cryptocurrencies pose.
The G7 taskforce comprises senior officials from central banks, the International Monetary Fund (IMF), and the Financial Stability Board, which monitors global financial rules.
The report underlined the importance that digital currencies must be legally sound and protect consumers. They mustn't allow their coins to be used for money laundering or to fund terrorism.
The report will be presented at the IMF annual meetings in Washington, D.C. this week.
The finger is pointed at 'global stablecoins' that have the potential to grow rapidly, and it's not just Libra in the spotlight but many others.
The difference between stablecoins and cryptocurrencies like Bitcoin is that stablecoins are linked to established currencies like the U.S. dollar or the pound sterling.
Libra could "stifle competition."
Because Libra has the potential to be huge, given its link to nearly 3 billion Facebook users, the G7 report has noted that this type of stablecoin could lead to instability issues.
Furthermore, there is the worry that Libra could "stifle competition" going as far as threatening financial stability if users suddenly lost faith in the digital currency.
The draft report stated that: "The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed."
Today, the Libra Association, which includes Facebook, is holding its first board meeting in Geneva, Switzerland.
NEW: “Visa has decided not to join the Libra Association at this time," the company tells CNBC.— CNBC Now (@CNBCnow) October 11, 2019
Visa is the fourth company to drop out today and the fifth total. https://t.co/s9HM6vURDu
So far, Mastercard, Visa, Stripe, eBay, and PayPal have all withdrawn from the Libra scheme. It's not looking good for Libra right now.