Facebook’s Libra cryptocurrency faces rough waters as concerns rise
19 June 2019
Facebook, along with 26 other global organisations, has formed a non-profit consortium called the Libra Association that is set to launch Libra, a new kind of digital currency which the Association claims will allow billions of people to transact easily across national borders without having to pay hefty transaction fees that they have to pay to banks.
Libra will be based on blockchain technology and will allow people across the world not only to send money to each other but also to pay for goods and services offered by a large number of global organisations. According to the Libra Association, the ease with which people will be able to transact using the new cryptocurrency will create “a more inclusive global financial system” in the future.
Libra targeted at billions of people lacking access to banks & credit
While the cryptocurrency will be available to all, Facebook claims that Libra will greatly benefit billions of people across the world who don’t own bank accounts, do not have access to credit, and who do not have the tools to easily send and receive money even though they currently have access to mobile phones and an Internet connection.
“Moving money around globally should be as easy and cost-effective as — and even more safe and secure than — sending a text message or sharing a photo, no matter where you live, what you do, or how much you earn. New product innovation and additional entrants to the ecosystem will enable the lowering of barriers to access and cost of capital for everyone and facilitate frictionless payments for more people,” the Association said.
“Imagine an open, interoperable ecosystem of financial services that developers and organisations will build to help people and businesses hold and transfer Libra for everyday use. With the proliferation of smartphones and wireless data, increasingly more people will be online and able to access Libra through these new services,” it added.
Unlike Bitcoin and other cryptocurrencies, Libra will not be a volatile cryptocurrency as it will be backed by the Libra reserve- a basket of bank deposits and short-term government securities which will keep its value stable, predictable and less vulnerable to sudden appreciations or depreciation.
“By fully backing each coin with a set of stable and liquid assets and by working with a competitive group of exchanges and other liquidity providers, users can have confidence that they will be able to sell any Libra coin at or close to the value of the reserve at any time. This gives the coin intrinsic value on day one and helps protect against the speculative swings of other cryptocurrencies,” the Association said.
The Libra Association will be based in Geneva, Switzerland and its list of founding members include Facebook, Visa, Mastercard, Uber, Anchorage, PayPal, eBay, Stripe, Lyft, Spotify, Coinbase, Xapo, Andreessen Horowitz, Union Square Ventures, Mercy Corps, and Women’s World Banking. In the near future, the Association may include over a hundred members from all accross the world.
Facebook announces Calibra digital wallet for Libra transactions
Aside from being a founding member of the Libra Association, Facebook will also play a major role in increasing the use of the cryptocurrency by enabling billions of its users to send and receive Libra on its Messenger service as well as on WhatsApp.
The global social media giant recently announced the formation of its new subsidiary known as Calibra which will introduce a digital wallet exclusively for Libra next year that will not only be integrated into Facebook Messenger and WhatsApp but will also be available as a standalone app.
“From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost. And, in time, we hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass,” Facebook said.
“When it launches, Calibra will have strong protections in place to keep your money and your information safe. We’ll be using all the same verification and anti-fraud processes that banks and credit cards use, and we’ll have automated systems that will proactively monitor activity to detect and prevent fraudulent behavior.
“We’ll also take steps to protect your privacy. Aside from limited cases, Calibra will not share account information or financial data with Facebook or any third party without customer consent. This means Calibra customers’ account information and financial data will not be used to improve ad targeting on the Facebook family of products,” it added, possibly to reassure users that it won’t use users’ financial data the same way it has been accused of using their personal data to increase its advertising revenues.
Global banks will monitor Libra very closely
Following the announcement that Libra will be launched in 2020 and will be supported by the Calibra digital wallet sponsored by Facebook, Mark Carney, governor of the Bank of England, has made it clear that the cryptocurrency will be subjected to the highest standards of global regulation and that Bank of England will closely monitor Libra even though he will keep an “open mind” about Libra’s utility.
Carney said that Bank of England will work closely with the Bank of International Settlements, the International Monetary Fund, the Financial Stability Board, as well as with G7 countries to scrutinize Libra in the future to check if Facebook will be able to protect users’ privacy and prevent money laundering at the same time.
Aside from Carney, the French Finance Minister Bruno Le Maire that allowing Libra to replace traditional currencies is out of the question, stating that “it can’t and it must not happen” as there are a large number of questions around the new project that concern privacy, money laundering and terrorism finance.
Image source: Facebook