A lot of investors and market observers were taken by surprise when Facebook first announced its plans to launch its own digital currency, Libra, back in June. Even though few details were included in the initial announcement, public opinion was very quickly divided, while regulators and lawmakers were even quicker to raise objections, call for hearings, and place the first obstacles in Libra’s way.
In the US, regulatory pressure continues to mount, while Italy, Germany and France are all united in opposing the new currency, with the French Economy Minister announcing that steps will be taken in the coming weeks "to show clearly that Libra is unwelcome in Europe".
As a result of these concerted warning shots, many of the project’s original backers have chosen to part ways with Facebook and abandon their place in the Libra Association, the group of multinational companies and nonprofits that is registered in Switzerland and created to oversee the new digital currency. Even though Libra has now lost several key partners, among them Visa, Mastercard, eBay and PayPal, Facebook still insists that the project will proceed as planned.
The currency is designed to function as a “stablecoin”, and it will be tethered to a basket of global assets to prevent the extreme volatility that is commonly associated with digital currencies. As for the actual launch date, the currency was originally scheduled to become available in 2020. However, after the fiery governmental response it was met with, Facebook has clarified that it will wait until all regulatory concerns have been resolved and Libra has the "appropriate approvals".
What differentiates Libra from other digital currencies and projects from the crypto sector is the instant access to the billions of potential users provided by Facebook. Unlike Bitcoin and the thousands of independent digital coins we’ve seen rise and fall, Libra doesn’t have to fight for awareness and recognition in the niche crypto community and the team behind it doesn’t have to debate the finer points of its code to gain trust and establish credibility. Instead, Libra has already made international headlines and once launched, it will have immediate access to 2.41 billion Facebook users.
Of course, the arguments in favor of Libra are not easily dismissed. It has the potential of providing financial services access to a very large part of the global population that is currently either unbanked or underbanked. It can also provide a better and more reliable means of exchange in countries with heavily dysfunctional, devalued or unstable national currencies, like Venezuela, Uganda, Somalia and Zimbabwe. Instead of relying on black market US dollars and unreliable informal payment systems, they can use a standardized digital currency, with reputable backers and a robust infrastructure capable of handling large transaction volumes.
Such a shift could have a tremendous impact on encouraging and facilitating economic activity, it can support entrepreneurship in struggling communities and ease trade and commerce. As can be expected, Facebook has gone to great lengths to highlight this aspect of the Libra and, although nobody can argue against the idea of lifting people out of poverty, we must keep in mind that the social media giant is not a charity.
This becomes immediately evident if we shift our focus away from the developing world for a moment and turn to the West, where no such humanitarian case can be made and where Facebook generates, by far, the largest part of its revenue. The extraordinary success of the company has been founded on the very simple concept of selling user data to advertisers. The tools to collect that data expanded over time, as it acquired new apps, provided additional services and developed better algorithms. Libra, when examined in this context and as a new and powerful addition to Facebook’s data collection arsenal, quickly begins to raise a multitude of questions. These questions become even more pressing when one considers the track record of the company when it comes to handling user data. Facebook has already been involved in data breaches and multiple privacy violations, including a record-breaking $5 billion fine imposed by the US Federal Trade Commission in July.
Privacy concerns, excessive control over the financial activities of billions of people, and the potential for abuse are all legitimate concerns. However, we must keep in mind that whatever one may think of Facebook and its motives, the company is not forcing anyone to use its currency. Those who have reservations and concerns over their privacy can choose not to use Libra, as they can choose not to have a Facebook account.
From this perspective, it can be argued that the new currency, flawed as it might be, still expands our range of choices and adds a new contender in the currency arena. When launched, it will compete with fiat money, with cryptocurrencies, and with a multitude of apps and platforms that people already use for their daily transactions. Thus, perhaps the best way to tell whether Libra will be a valuable tool for financial freedom or the latest ploy of a corporation that cannot be trusted is to let the market decide.
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