Libra - Imperfect Yet Undeniable Potential
Facebook, supported by 27 founding partners (including major financial organizations like Visa and Mastercard), plans on releasing its own digital currency, Libra, in 2020. Along with this currency, the company plans on setting up a subsidiary called Calibra, which they hope to use for additional financial services related to Libra—eventually including lending and investing.
While many criticisms of cryptocurrencies point to their volatility, Libra will be backed by a basket of international currencies such as the dollar, euro, and yen. Thereby, its value would fluctuate as these currencies do. Supposedly, every time someone buys Libra, the money will be deposited into a bank account and left there, allowing for all money in Libra to be backed by an equal amount in dollars or euros—established, government-issued currencies. As the money sits in the bank account, it would accrue interest which will gradually pay back Libra’s initial investors.
Facebook presents Libra as a way to empower the “unbanked,” with its near-inexistent fees and high accessibility. A phone and an official form of identification would allow anyone to create a Libra wallet, and the use of such a wallet would not be limited to Facebook, but available to any company who desires one.
Yet Facebook has seen a huge amount of backlash from politicians, privacy activists, and bankers, among others. Not only does it pose a huge threat to existing banks by offering low transaction costs and being readily available to billions of people through its existing networks, Libra could single-handedly re-distribute a significant amount of control over monetary policy and financial power from central banks to private companies. This brings big antitrust issues, and could prove to be very dangerous, especially considering recent widespread distrust of Facebook itself. While its creators claim that all financial services associated with Libra will be adequately regulated, many mention lack of regulation as one of the biggest issues with digital currencies and particularly with Libra. Finally, the protection of confidential information, a concern which Facebook is all too familiar with, is cited as one of the digital currency’s biggest potential risks. Trusting such a monumental amount of data to a single private company, especially one which has seen numerous past failures in information protection, is a massive risk, and one which many policy makers do not feel comfortable taking.
Nevertheless, despite widespread and international pushback and criticisms, it is hard to ignore Libra’s potential to bring digital currencies into the mainstream, and change financial systems. Its appeal is particularly significant in developing countries. Many of their people remain unbanked; and their existing financial institutions see high transaction costs, thereby charging high fees, which many can’t afford. Libra’s low-fee and highly accessible approach to financial services and transactions could potentially solve many of these countries’ problems, as they are available to any individual and small to medium-sized firm. While there is still much to figure out, Libra could mark the beginning of a new age of digital currencies and easy, instantaneous global exchange.
Written by Paul Luu Van Lang, Edited by Devaansh Mahtani & Alexander Fleiss