Facebook’s plan to divulge into the financial services through Libra is set to launch in 2020. When the concept note of Libra was published in June 2019, it caught the negative attention of the regulators and the central banks worldwide. You can read our introductory article to Libra here.
Facebook’s cryptocurrency was introduced by the additional 27 members of Libra association. However, due to the regulatory scrutiny, many of whom bailed on Facebook. These include PayPal, Visa, MasterCard, Stripe, Mercado Pago, eBay, Booking Holdings, Priceline, Kayak, and Vodafone. Libra Association was joined by the new members like Temasek, Paradigm, Slow Ventures, Tagomi, Heifer International, Shopify, and Checkout.com.
After the initial release, a new white paper was published in April 2020 addressing concerns and making certain changes to the plans for Libra. The changes made to the Libra to appease the regulators are:
Introduction of single currency stable coins along with the multi-currency backed Libra Coin;
Enhancement of compliance for a secure payment system;
Forgoing the permissionless system retaining the economic properties of it; and
Bringing in protection for the libra reserve.
According to the Global Findex data by the World Bank, in 2017, 1.7 billion people remained unbanked. Approximately 2.5 billion people are monthly active users of Facebook out of which the maximum number of users is based in India at 280 million. Further, since the acquisition of WhatsApp and Instagram, Facebook has the largest install base with a data monopoly since Facebook, Facebook Messenger, WhatsApp, and Instagram are the highest downloaded applications in the same order. Therefore, allowing Facebook to enter into yet another unregulated space of cryptocurrencies has definitely caused concern.
Comprehensively regulating cryptocurrencies will be challenging until the exact nature of cryptocurrencies is determined and widely accepted. However, the introduction of Libra by Facebook has rung a bell of urgency to regulate the space with comprehensive guidelines keeping in mind the interest of the users. Facebook has announced that the Libra Association will work with the central banks worldwide, however, it remains unclear if Facebook will have to be registered as a financial institution as well since it will have self-issued currency though backed by cash and cash equivalent and government securities.
In the new white paper, the Libra has announced introducing single currency stablecoins for 5 (five) currencies at the beginning which may be expanded to the remaining sovereign currencies eventually. These include LibraUSD (≋USD), LibraEUR (≋EUR), LibraGBP (≋GBP), LibraSGD (≋SGD). These jurisdictions have been picked carefully being the most stable currencies of the world. Each stablecoin will have an equivalent value of a sovereign currency much like Paytm or PayPal. However, a libra stablecoin can always be converted back into any sovereign currency by any wallet services. Facebook will have its own wallet services which were called Calibra earlier has been renamed to Novi which will be connected to applications owned by Facebook.
The regulators had a concern that Libra is likely to compete with their sovereign currency, considering the huge install base. Therefore, single currency stable coins were introduced. However, Libra has not dropped the plan of a Libra Coin which will have a combined value of the basket of currencies mentioned above. This product will be to attract nationals of countries with hyperinflation economies like Indonesia, Zimbabwe, Argentine, where people do not trust the government and are likely to store their money in an equivalent of all the stable currencies of the world.
Data monopoly along with the issuance of currency will concentrate too much power in the hands of one company leaving people to be ruled by the corporatocracy. It is difficult to have confidence in Libra considering that the Cambridge Analytica data scandal was not too long ago where data of millions of users was used for a political campaign. There is an absence of laws for cryptocurrencies or stablecoins in the present case as also data privacy laws. European Union’s General Data Protection Regulation of 2018 is the only strengthened data privacy law in the world. The introduction of a currency like Libra is unprecedented and therefore, extreme caution is required.
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