European Central Bank warns that cryptocurrencies like Libra could pose a major risk for financial stability

It seems as if the Libra Association has ramped up its efforts to get Libra off the launchpad. However, now the European Central Bank has published a research paper warning that stablecoins like Libra could badly impact the markets.

The researchers stated that if any stablecoin grows to become a global force, then any of its faults risk destabilising financial markets.

The paper highlighted two main risks to this effect: “the risk of a liquidity run impairing the functioning of the stablecoin arrangement and the risk of contagion spreading to the wider financial system as a result of an impaired stablecoin arrangement.”

One of the key issues that needs to be addressed, according to the researchers, is that there are still huge gaps in the regulations for how these types of cryptocurrencies should be regulated.

“Given the complexity of its structure, a stablecoin arrangement could, depending on its specific design features, fall under one of a number of different regulatory frameworks – or, potentially, none of them,” the researchers wrote.

In other words, depending on its structure, it is unclear how well protected end users are.

The news comes after months of speculation, governmental hearings and partners abandoning the Libra project.

Yet, there are signs that Facebook and the other members of the Libra Association are pushing to make it a reality. In April, the Swiss Financial Market Supervisory Authority (FINMA) has received an application from the Geneva-based Libra Association for a payment system licence. While this marked the beginning of the licensing process under Swiss supervisory law, the regulator noted that the “outcome and duration of the procedure remain open.”

At the end of last month, it was revealed that Facebook was looking to hire 50 workers in Ireland to work on Calibra, Facebook’s digital wallet that would be used to process transactions with Libra.

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