Things aren’t going well for Facebook’s cryptocurrency.
Libra is supposed to launch in June 2020 but the withdrawal over the last month of seven of the consortium’s founding members, including PayPal, Mastercard, and Visa, have thrown that launch into doubt. The loss of the world’s leading payment firms would be hard to replace. Stripe and eBay have also abandoned the project.
Facebook now appears to be open to changing the nature of the coin altogether. According to Reuters, David Marcus, who heads the Libra project, recently told a banking seminar that the consortium is considering replacing the single cryptocurrency with a series of local coins linked to local currencies.
“Instead of having a synthetic unit ... we could have a series of stablecoins, a dollar stablecoin, a euro stablecoin, a sterling pound stable coin, etc.,” Marcus said.
The change from one coin linked to a single basket of fiat currencies to multiple coins linked to multiple fiat currencies would enable users to enact online transactions quickly and cheaply. But it would also complicate cross-border trade and make the whole project harder to manage than a single currency. It would also make the coins more vulnerable to national monetary policies.
There are two reasons that Libra is coming under so much pressure that major backers are leaving and the consortium is considering reinventing itself.
The first is the risk that Libra poses to the financial system. National banks are currently able to control the flow of their currencies. The banks obey parameters set by government, usually in the form of an inflation target, and use interest rates to manage the amount of money flowing through the economy. If a digital coin takes off, central banks and governments would see that power weakened. Their ability to lift an economy out of recession by printing more money would be reduced if many of its citizens are using a completely different currency. The idea that that currency would be managed by a private company accountable only to its shareholders, worries governments.
And what would happen if Libra’s system collapsed? Would owners of large amounts of Libra be insured if the consortium stopped operating, if an exchange were hacked or wallets rendered unusable? Would governments be expected to bail out holders of Libra in the event of a run on digital banks? Social media companies can move fast and break things. But banks have to move slowly and stay safe. The things they break aren’t servers or advertising networks. They’re national economies.
The development of a cryptocurrency that could be used by a couple of billion people worldwide poses very different risks to the creation of a technology product.
Those risks make the project difficult enough but its creators make it even more difficult. Facebook has a trust problem. Mark Zuckerberg is not known for safeguarding his users’ privacy. If he’s so cavalier about his users’ data, why should anyone trust him with their wealth? Nor is Zuckerberg popular with politicians on either of the side of the aisle and on both sides of the Atlantic. No one responsible for creating the regulations that would govern Libra is enthusiastic about doing him any favors or willing to give him the benefit of the doubt. That goes double in an area as sensitive as finance.
None of this means that Libra is dead. The company says that no fewer than 180 companies have offered to replace the seven who have left the consortium. They have to meet requirements that include hitting two of three thresholds of a $1 billion USD market value, $500 million in customer balances, reaching 20 million people a year, or being recognized as a top 100 industry leader. They’re big companies. Facebook also has plenty of assets that it can draw on for a long legal and public fight, and Mark Zuckerberg isn’t known for giving up easily. Someone who has built a product used by 2.4 billion people every month can’t be dismissed easily.
Libra faces a number of important hurdles. Regulators aren’t going to give it an easy time, nor should they. But if anyone can make it work and push the cryptocurrency over those hurdles it’s the guy who built Facebook.
Joel Comm is New York Times best-selling author, blockchain enthusiast, futurist speaker, social media marketing strategist, live video expert, technologist, brand influencer, and eternal 12-year old. His latest project is as co-host of The Bad Crypto Podcast, a top cryptocurrency show making the future of digital payments easy to understand.
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