Facebook 'rethinks' plans for Libra cryptocurrency - BBC News
Facebook 'rethinks' plans for Libra cryptocurrency - BBC News - Click here to read more.
Ben Symons comments on reports that Facebook is rethinking its plans for its own digital currency after resistance from regulators.
Facebook is the company that has the greatest potential to commercialise cryptocurrency. Unfortunately, their project faces numerous regulatory challenges and also hostility across the political spectrum in the United States and the European Union. It remains to be seen whether they are actually able to successfully launch Libra at scale.
Facebook has some 2.5 billion unique users. It is the number one social networking app in 129 out of 137 countries around the world. Facebook enormous user base makes it uniquely positioned to offer a payment service based on a cryptocurrency that could be easily and widely adopted by its users right around the world. Such a payment service would cut out intermediaries and lower transaction costs. In theory, lower transaction for consumer transactions should result in lower prices. Transaction costs would also fall for foreign exchange transactions. Facebook’s cryptocurrency would also effectively provide banking services to many people in countries such as India and Brazil who are presently “unbanked”.
Essentially, Facebook wants to become a bank. Unsurprisingly, this throws up numerous regulatory problems. Facebook will effectively need to be regulated like a bank.
The biggest concern is that anyone can potentially set up a fake Facebook account. If they have access to Facebook’s cryptocurrency service, this creates two big problems:
- Organised criminals could potentially use Facebook’s currency to try and hide the “paper trail” for their nefarious activities;
- How can US sanctions be enforced if anyone can set up a fake Facebook account and acquire US dollars / hard currency?;
Further, smaller countries may effectively lose control of their money supply if Facebook users in those markets “dollarise” by converting their local currency into US dollars or other hard currency.
Facebook faces hostility across the political spectrum. President Trump tweeted last year “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks.” President Trump along with France’s Finance Minister, Minister Bruno Le Maire, and numerous others have also called for strict regulation to prevent Libra being used for money laundering and terrorist financing. There has also been speculation that the Democrats would introduce a bill to stop Facebook’s Libra project because the object to a company of Facebooks size dominating both social media and payment services.
Facebook’s original proposal was that its cryptocurrency would effectively represent a basket of currencies such as the US dollar, the Euro etc. It has presumably moved away from this and towards a model where digital currencies effectively represent fiat currencies, because this may be easier to address the regulatory problems outlined above. It will be interesting to see how Facebook progresses with their project. At present, they are the company that holds the greatest promise of commercialising cryptocurrency as a payment service on a wide scale.