Facebook’s cryptocurrency project called Libra, unveiled last week, bids to build an alternative global financial system by leveraging its social media audience of nearly three billion in nearly 200 countries. By the middle of 2020, such a system could allow, say, an Indian to send Libra to a person in Kenya, or use it to buy from an online store in Brazil and much more.
Libra is planned as a cryptocurrency but it is not really like the wild Bitcoin. It will be backed by fiat currencies, probably a handful of leading ones. Consequently, its value will be tied to the basket of currencies. It will bow to regulatory oversight and could be subject to varied sets of rules in various countries. From what we know so far, it also cannot be mined liked the Bitcoin is by running complex computations. Libra will most likely be converted from fiat currencies.
If you forget for a moment Libra’s blockchain underpinnings and use of distributed ledger technology to manage transactions, it functions simply as a digital wallet using a common currency for global transactions — one in which a user can receive money from anybody and send money to anybody, or shop anywhere in the world.
If successful, Libra would disrupt several large markets and create a new legal online tender to challenge sovereign currencies. It could upend worldwide remittances worth $700 billion annually, dominated by traditional giants like Western Union or startups such as Transferwise; or ecommerce transactions worth $3.5 trillion, currently tapped by the likes of PayPal, Alipay and Apple Pay; and mobile-based transactions by the likes of India’s PayTM, which sometime back expressed concerns over WhatsApp’s proposed payments platform.
What Mark Zuckerberg proposes for Libra dwarfs the common Silicon Valley hyperbole of world domination. So much so, it might be safe to say no company has ever set for itself a more ambitious goal. Facebook’s bid looks even more audacious when you consider that it is already facing antitrust scrutiny. Many global leaders, notably US Democratic presidential runner Elizabeth Warren, believe Facebook, like other Internet giants, is too big for the world’s good and needs to be broken up before it causes further harm.
If early reactions to Libra are an indication, it only shows why Facebook’s bigger rival Google, for example, has not attempted anything on this scale. For, regulatory approval seems near impossible, and oversight may be just too overwhelming to create a user-friendly payments platform.
France is alarmed about a ‘corporate’ currency that could rival sovereign currencies. As chair of the G7, it has quickly announced a task force for the rich group of countries to study how central banks can regulate Libra on a range of issues including money-laundering and terrorist financing. Rest of Europe has responded with equal caution. Bank of England, for example, has held out the view that the world’s major central banks must have oversight over Libra.
In the US, the reaction has been arguably sharper. Hours after Facebook’s announcement, Maxine Waters, chair of the house financial services committee, demanded a moratorium on the project until Congress and financial regulators have had an opportunity to assess its scope and impact. Waters has focused not only on financial regulation but also on Facebook’s troubled past — “disregard for the protection” of the personal data of billions of people, and its inability or unwillingness to fight fake news.
Facebook’s prior conduct has been far from exemplary. It has repeatedly misled users and continues to do so. It has rebuffed regulators and expects to be allowed to pay its way through penalties as high as several billion dollars simply because it earns much more from the data it mines.
In the circumstances, could Facebook ever be trusted to, say, control money laundering or terrorist financing? Could it be trusted not to misuse personal data to build an even more lucrative financial services business? Or to stifle smaller rivals in the financial world? European and American lawmakers promise answers as soon as next month.
But what about India?
Predictably, the Indian government or the Reserve Bank of India has not officially responded to Libra. After all, their opposition to cryptocurrencies is well known. It is because of countries such as India that research group Forrester, in fact, believes Facebook may have created “a series of massively complex challenges,” by offering Libra as a cryptocurrency, rather than as a new payment system.
However, what if Facebook were to present Libra in India and other countries as a digital wallet, not as a cryptocurrency? It would be no different than, say, PayPal, PayTM or Amazon Pay or Google Pay. India already tightly regulates PayPal. It, for example, monitors transactions and does not let users hold balances in currency other than Indian rupees. Conceivably, it could similarly regulate Libra. To win regulatory approval in India, Facebook could even run a separate payment system here and consider integrating it with Libra in the future.
Bala Murali Krishna works for a New York-based startup. Views are personal
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