The Korea Institute of Finance (KIF) revealed its views on Libra in a press briefing on finance Saturday.

In a report entitled “Libra, Bank Run and Tobin Tax,” the think tank said, “Existing control systems that could contain massive bank runs could be incapacitated in the event of abrupt shocks on the real economy if the public’s receptivity to unregulated payment channels is expanded.” The report added, “The so-called Tobin Tax (universal financial tax) imposed on short-term currency transactions is getting a fresh spotlight as an additional control device against bank runs.”

The KIF cited Argentina as an example. It forecast that if Argentinians are able to convert their currency peso into fiat currencies of major countries just with smartphone touch, they will be more likely to do so in the event of shocks on the real economy.

The KIF expressed concern that such countries as Argentina that experienced repeated currency devaluations and small and medium-sized countries adopting the floating foreign exchange system may be very vulnerable to massive capital flights if payment channels are led by private currencies like Libra.

According to the KIF, the rapid movement between fiat currencies of two countries will be less likely because of control systems accompanying international currency transactions like costs and regulations as long as cryptocurrency is not commercialized. “The foreign exchange gap between buying and selling reaches about 10% and remittance fees are considerable. Even in the event of massive foreign exchange transactions, foreign exchange authorities can stabilize the currency market by beefing up customer identity and anti-money laundering rules,” it said.

Yet the KIF believes that there must be other devices if cryptocurrencies issued by private groups are commercialized.

“At a time when Tobin Tax is reilluminated, the Bank for International Settlements must be proactive in reinventing laws and enacting international agreements to brace for potential side effects arising from the expanded issuance of private currencies. It will be necessary to consider issuing a stable cryptocurrency led by central banks.” the KIF said. /shim@decenter.kr

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