Federal Reserve Chairman Jerome Powell said on Friday that Facebook's (FB) proposed digital currency, Libra, would probably have so many users that it might cause instability in the financial system if something went wrong.
"With Facebook's very large network of more than a billion people, a stablecoin could have systemic implications very quickly," Powell said in a webcast discussion in Zurich with Swiss National Bank Chairman Thomas Jordan. "Libra would have to be held to the highest regulatory standards and expectations."
Powell said that if usage of Libra became widespread, then it would have to be regulated as a systemically significant financial system, a designation that currently applies mainly to big banks like JPMorgan Chase (JPM) whose failure might lead to another Lehman Brothers-style financial crisis.
Powell added that "it is not obvious to see how that would happen in our current regulatory system."
Still, according to Powell, the Federal Reserve wants "to see responsible financial innovation, so it's important that we be open" to Facebook's proposal.
"We don't just want to be an obstacle," Powell said.
The U.S. central banker said separately that the Fed is "not actively considering" its own digital currency, partly due to cybersecurity risks.
There's also the risk that banks might not be able to fulfill their role in the economy of providing loans to businesses and households, if people keep their money in a digital currency instead of deposits at banks.
"What will happen to the intermediation process if everyone's just investing it in this cyber-currency?" Powell said.
Digital currencies have drawn increasing scrutiny from U.S. lawmakers in Washington since Facebook unveiled plans in June to launch Libra as soon as next year.