Late last month, following an on-going series of leaks about the project, Facebook officially announced its plans to launch their own, in-platform cryptocurrency, to be known as Libra, scheduled for 2020.
According to the Libra Whitepaper released by Facebook, their mission is to “enable a simple global currency and financial infrastructure that empowers billions of people.”
According to their research, there are around 1.7 billion adults in the world who do not have a bank account or access to formal financial services, even though 1 billion of those have a mobile phone, and half a billion have internet access.
Financial Services Access
With Facebook seeing access to financial services being limited or restricted for those who needed it most, they felt that the penetration of their existing services (with around 2.7 billion users across Facebook-owned properties including WhatsApp and Instagram) gave them the ideal platform to provide some of those people with a unified currency to enable transactions and transfers.
In addition, that user-base could be an ideal audience to drive adoption. Cryptocurrency has not yet achieved mainstream acceptance, and Facebook identifies their volatility and lack of scalability as issues hindering that acceptance.
Facebook intended to address this by backing the new cryptocurrency with an asset reserve that would give the currency an intrinsic and tangible value, and governing it via an independent, non-profit association headquartered in Switzerland and comprising a diverse group of non-profits, businesses and other organisations.
On the face of it, this seems like a great idea. Allow people to buy things online or transfer funds to each other after having purchased Libra via any of a wide variety of methods, from credit cards to vouchers from vendors. Enable financial transactions and services for people who have never been able to gain reliable access to them before. This could in theory economically empower countless individuals.
Regulators, non-profit organisations, politicians and businessmen did not react positively to the news, and the US House Financial Services Committee called on Facebook to pause the project until it could be vetted by legislators.
The Committee held its “Libra Hearing” on the 17th July 2019, and the concerns of the politicians were many and varied, from the possibilities of money laundering and fraud, to funding terrorism, and threatening the stability of the US Dollar.
(And personally, I can’t help but wonder if the threat to the almighty Dollar may be at the heart of this. Not least because, economically speaking, they may have a point…)
The Facebook Economy
Facebook’s estimated 2.7 billion users make up almost as many people as the top 3 most populous countries in the world combined. Only 2.5 million people use Bitcoin. And only 350 million people use the US Dollar.
Facebook could, almost overnight, have a billion people or more using their own global currency. A company which has just had a $5 Billion Dollar fine levied against it, in part for the mismanagement of user data.
Facebook would become a type of central bank with more people using its currency than any national fiat currency, with unknown implications for tax and other financial regulatory requirements.
With economists already starting to question the role that mega-corporations are playing in influencing the economy, it’s not surprising that the thought of them doing so directly with a fiat currency of their own is concerning to both legislators and economists alike.
Following the “Libra Hearings” by the US House Financial Services Committee though, Facebook has backtracked a little, conceding that regulatory issues may in the end prevent the launch of its cryptocurrency project.
Part of this is due to the uncertainty regarding digital currency law and regulations, and having faced the hearing, it seems another part may be the risk that the regulatory scrutiny that they will come under, both from their partners and from government, could have a negative effect on their existing business.
In addition, they admitted their own lack of experience with digital currency, and (probably unfounded) fears that it would not prove a popular product.
No Facebook Currency
So, it seems that the interest and criticism generated by the announcement of their plans may, in the end, prevent them from carrying out that plan. For now at least.