On June 18, 2019 Facebook announced its virtual currency Libra, with the vision that Libra will become a global means of payment for the billions, especially for people without a bank account. The currency was first called “Facebook Coin” and “GlobalCoin,” pointing to its intended global reach, and later renamed to Libra. Why is Libra so interesting?
Libra enjoys massive support. At one point, the Libra Association, a Swiss group, had around 30 supporting members, mostly companies with big names in finance and technology. In the meantime, some of them have sensed what a huge opportunity lies in virtual currencies and decided to go their own ways, and thus, they have left the project of Libra (for example, Booking Holdings, eBay, MasterCard, Mercado Pago, PayPal, Stripe, Visa, and Vodafone).
What is the Libra’s mission:
“A simple global payment system and financial infrastructure that empowers billions of people.”
Facebook hopes to raise as much as 1 billion US dollars from existing and future partners to support the project. Libra is set to launch in 2020, but first Facebook has to convince regulators on both sides of the Atlantic. As of July 2020, 27 members were supporting Libra endeavors, for example, Anchorage, BisonTrails, Novi, PayU, Shopify, Spotify, Uber, and Xapo. It is apparent that many global companies stand behind Libra and want to make it a success. But regulatory authorities voice their concerns that Libra, as a global, cross-border payment system, could undermine sovereign currencies.
Who Is Afraid of Libra?
David Marcus, the head of Facebook’s Libra subsidiary Calibra had to face a panel of senators who raised their concerns, pointing to Facebook’s bad track record, for example, the allegations that its services were helping foreign powers interfere with their elections. This has raised questions, whether Facebook is ready to take on this kind of responsibility and power. And Facebook seems to be aware of that issue, as can be seen from David Marcus’ words on trust:
“Trust is primordial, and we’ve made mistakes in the past and we have been working and are continuing to work really hard to get better.”
Central banks worldwide have raised concerns that Libra could become a rival to sovereign currencies. David Marcus denied that this was Facebook’s aim and promised the Senate Banking Committee that Libra would not be in anyone’s digital wallet until global regulators are satisfied.
“We will take the time to get this right. We expect the review of Libra to be among the most extensive ever. We are fully committed to working with regulators here and around the world. And let me be clear and unambiguous: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
With concerns that Libra could also be used to pay for shady activities, the US authorities are giving Facebook’s plans a closer look.
On top of that, the advocates of cryptocurrencies have their own reservations, stressing that Libra is not a real cryptocurrency, because it is centralized and governed by the authorities.
Globally, about 30 percent of adults still remain unbanked, which is around 2 billion unbanked people all around the world. Even the USA has some 14 million adults without a bank account. On the other hand, as of the first quarter of 2020, Facebook had over 2.6 billion monthly active users, with all these being potential happy users of the Libra virtual currency.
Libra plans to be interesting for everybody, including the unbanked and for those making international payments which are sometimes cumbersome through the current banking system and are associated with unwelcome transaction fees.
According to their white paper, the Libra payment system is meant for everybody, bringing in the following features:
- Easy and cheap: Libra aims to make things easy, explaining that paying online should be as fast and simple as sending a message.
- Mobile: The Libra aims to be for anybody equipped with just a basic smartphone.
- Fast: Libra transactions are designed to be fast.
- Stable: Libra Coins are backed by “basket of currencies,” assets and short-term government securities.
- Scalable: Libra’s protocol is open-source, inviting more developers to come with new services and products utilizing Libra.
- Secure: Libra makes use of blockchain technology, putting stress on security.
- Global: Libra aims to make payments accessible and easy for anybody, anywhere in the world.
Once Libra passes the regulatory scrutiny, about a third of the global population can start using it, with tons of new users coming every day since they will want the same ease and advantages. As an example, let’s imagine how everything will be simple with just Shopify and Facebook’s Libra together – buying and selling anywhere, to anyone, all with easy payments.
Since the Libra project has not been launched yet and is still under development and scrutiny from regulators, all kinds of scenarios may take place. Some think that instead of using a “basket of currencies”, Libra might branch into several projects with several virtual currencies (something like Libra #1, Libra #2, Libra #3, etc.) where each of them will be backed by different fiat currencies or assets. Thus, Libra can generate its own competitors.
As huge of a project as it is, Libra could not escape the notice of global companies that also wanted to benefit from the opportunities offered by the blockchain and virtual currencies. In March 2020, Alliance for Prosperity launched their Celo project, with its name borrowed from Esperanto (celo meaning purpose).
Celo doesn’t aim to replace the USD with its own virtual currency and chose to back its reserve with other cryptos rather than with fiat money. This approach might be easier to accept for regulators, who seem to be afraid that Libra’s “basket of currencies” intended for backing could weaken the current global financial system.
As of May 2020, Celo Foundation had 75 supporters, with some of them (for example Anchorage, Andreessen Horowitz, BisonTrails, and Coinbase Ventures) supporting Libra as well. Users might appreciate that the Celo Wallet is already available for Android, and iOS.
So far, over 130 organizations have shown interest in using and building on the Celo platform. But Libra reports that over 1,500 teams and organizations have expressed their interest in working on their project.
Banking infrastructure is another serious contender, since central banks will definitely not want to be left empty handed. They already have a massive client base, taking advantage of a well-known fact that people tend to stick with their banks and are not very open to changing their lifelong habits when it comes to payments. Thus, the banking system might want to come up with solutions on the blockchain and with virtual currencies and digital currencies that might be attractive for their current clients.
Cryptocurrencies should not be left out of the picture. The users definitely don’t need to wait for any project or institution to give them new ways of payments, and they can just start using Bitcoin or other cryptocurrencies for their payments.
Who Will Decide for Libra in the End?
We can easily imagine a scenario where a mixture of payment methods will coexist, at least for some time. Some people will be sticking to cash, to physical banknotes and coins, as long as possible. Some people might readily jump to a completely cashless solution that will simplify things in their lives. Others won’t reach just for the easiest method, but might also require a solution that will provide freedom and stability; they might prefer blockchain solutions with peer-to-peer payment methods, without any intermediary or central authority. These are exciting times to live in, since the transformation of the whole payment system seems to be already underway and it is unstoppable.