Viewpoint: Facebook’s Foray Into the World of Banking and Finance Is an Ethical and Regulatory Minefield
By Ross Buckley
In mid-June, Facebook announced it intends to launch a new cryptocurrency next year, called the Libra. Libra will be e-money. You will buy it with hard currency, and receive e-money that will exist in a digital wallet on your phone and be useful for some payments. Libra’s utility will initially be limited in highly developed countries, like ours, with highly convenient and efficient payment systems. It is likely to take off in less developed places, because some 1.7 billion people today lack access to the most basic financial services. After all, Libra is like the mobile money, such as M-Pesa, that has so flourished in East Africa, but on a global scale.
Bitcoin and Libra are both cryptocurrencies, but Libra is very different and has extraordinary potential. Bitcoin is a truly decentralised currency with no central administering organisation. Its supply is tightly constrained, so its value varies wildly. The three indicia of money are that it is a medium of exchange, a unit of account and a store of value. Bitcoin’s extreme volatility means it can only serve as a medium of exchange in instantaneous transactions, so it is currency, but not money.
Libra will be money. Its value will be tied to a basket of the world’s major government-issued currencies and every Libra issued will mean an equal amount of such currency, or highly liquid government bonds, have been placed on deposit with a reliable repository. As such, Libra will be a stablecoin. There is nothing new about this. Stablecoins currently abound. The difference will lie in the breathtaking reach and utility Libra will enjoy on the back of Facebook’s 2.3 billion active monthly users.
Photo courtesy of Pixabay.