In 2020, Facebook launches Libra, a cryptocurrency that promises to shake the world of money transfer, spreading enthusiasm and worry wherever it is mentioned.
Officially baptised Libra, Facebook’s cryptocurrency has already made headlines even though it is still in the works. The social network revealed more details on their ambition in a communique on the 18th of June, exposing that they have been working on it for some time. The same day TechCrunch reports that this cryptocurrency should be launched in the first half of 2020 in order to create a global financial structure destined to facilitate money transfers.
With the same move, Facebook also announced the creation of a new branch, Calibra. This branch will be in charge of handling encrypted transactions as well as ensuring the safekeeping of users’ data privacy. Facebook guarantees that social data (Facebook) and financial data (Libra) will be kept separate and that neither can be used for advertising targeting.
Facebook launched a call for tenders, to which 28 NGOs and financial companies have responded including; MasterCard, Uber, Vodafone, Lyft, Visa, and Booking. This in turn has created a new independent organisation: Libra Association. “Implied in this project is that wherever the Visa or Mastercard logo are accepted, Libra would follow suit,” Dante Disparte, head of policy and communications for the Libra Association, told CoinDesk in an exclusive interview.
For the “unbanked ones”
This cryptocurrency project has been kept a secret for months. We don’t yet know the cost of one Libra, but with this recent announcement, we know that they will be available for purchase online or physically.
Calibra will firstly set you up with a digital wallet which will allow users to transfer money using a smartphone “as easily and instantly as you might send a text message and at low to no cost” on all the platforms that the group owns like; WhatsApp, Messenger, Facebook, and Instagram. This function will be accessible through the Calibra app, we closely mirrors Google Pay.
Over time, and similar in model to the Chinese social network WeChat, the app will also allow users to “pay bills by simply pushing a button” or to “board public transport without the need for cash or physical ticket” adds Facebook in its communique. Different to WeChat however, Facebook will base their model on their own currency which will be less costly and faster for users, rather than on traditional currency like China does.
Naturally, following the scandal that plunged Facebook into turmoil, the company is walking on eggshells. This is why all the money will be handled from day one by the Libra Association, based in Geneva. The governance rules haven’t been written yet, but Facebook re-assures the public that it will only be one company among the other companies within the Geneva association. “A single company cannot hope to control such a large network” states the F of GAFAM.
Each member who joins the association is asked to invest a minimum of 10 million dollars in the project, and Facebook hopes to reach 100 members before Libra’s launch. Based in Switzerland, the foundation will have the aim of handling the evolution of the new digital currency as well as the funds supporting its growth.
What’s more, Libra will be a currency that requires no bank account. Facebook let it be known that people without bank accounts are the main targets for Libra. It will be able to offer an alternative with “little to no fees”, no matter where you are in the world. According to a report from The World Bank dating back to April 19th 2018 “Globally, 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services.” Dante Disparte confirms that “the central goal here really is financial inclusion.”
The Interest of a New Market
Facebook’s other objective according to Capital journalist Gregory Raymond, is to take their place in a new market. The cryptocurrency specialist explains to the Huffington Post that “Facebook’s economic model (based on the sale of advertising space) has reached a certain level of maturity and the company needs new revenue sources to keep growing. Its project is to become a new payment giant. Like a new Visa or PayPal.”
Hence, the company is paying close attention to the world of online payments and sees in it formidable possibilities. “Today, only 4% to 6% of payments are made online, this is a market that will blow up in the coming years” adds Raymond. “The moment seems opportune because technology today allows us to circumvent conventional payment networks and operators.”
A quarter of the world’s population (2,3 billion users) is active on the apps that Facebook owns. In theory, just as many people are thus likely to use this new currency. We can understand why Facebook is salivating at the idea.
A Source of Worry
Gregory Raymond is still waiting to see if the launch of Libra will have a positive effect on the market. He does underline that this new currency will not compete with bitcoin, contrary to what other specialists – including Economy Professor Alexandre Roch – have said. According to Raymond, the two currencies “don’t answer the same need”. All speculation on Libra is as of yet unreliable, seeing as how it will rely on many different currencies (not just dollars) in order to reach stability.
The new cryptocurrency will instead be in competition with the currency of sovereign states. When asked if his company was about to take over the role of a state, Facebook’s current director of public affairs, Nick Clegg, denied this, citing the multi-headed governance of this cryptocurrency.
In other words, when asked about Libra’s challenge to the sovereignty of developing countries like India or Brazil, he compared the new company with the first privatizations of airlines or telecommunication companies. “Will an innovative technology that brings benefits to the masses put historica players of a sector in difficulty? Yes, of course.” he explains to Le Monde. “But, before all, cryptocurrency is putting the current banking system in question, a system that puts billions of people in difficulty.”
In the meantime, Libra is already the main focus for legislators around the world, who are worried about seeing private companies independently setting up new monetary systems. The New York Times reports that the U.S. Lawmaker Maxine Waters called a ban on FB developing their cryptocurrency on June 18th until Congress can evaluate the situation due to the social network’s “troubled past”. In a communique with Motherboard, a Facebook spokesperson shows reconciliatory manner saying, “we look forward to responding to lawmakers’ questions as this process moves forward.”
Banks “have a lot to worry about” adds Raymond. “The magnitude of what is coming to them is a thousand times greater than what they experienced with the emergence of FinTechs. But this time, they won’t be able to buy over the competition.” Those in the financial system worried that Google, Amazon, or Apple would create their own currency and democratize cryptocurrencies. For Louis Roy, associate with the Quebec-based accountants company Raymond Chabot Grant Thornton , “it was only a matter of time, and Facebook is the first to do it on a large-scale.”
Author: Malaurie Chokoualé Datou