By Ralf Gladis, CEO, Computop
Facebook’s Libra cryptocurrency has been positioned as a low-cost global payments and financial services eco-system that will give people access to the “internet of money.” Twenty-eight of the world’s most prominent stakeholders in payments and commerce are involved as Founding Members and their experience and expertise is shaping Libra’s charter and governance structure.
There’s no doubt that cryptocurrency has a momentum and this cannot be ignored, but in the case of Libra, other factors are at play that make this particular cryptocurrency something that we should all be exceedingly wary of.
One of the aims of Libra is to make P2P payments easier for Facebook users. Certainly, this would seem to be the case for online payments. Millions of people around the globe already use Facebook and it would be easy for them to move money to and from each other. The amounts involved are considerable, and would cover everything from splitting bills in restaurants to exchanging money for birthday or Christmas gifts. The other obvious advantage, if you are a consumer, is that currency wouldn’t be an issue because you are simply paying in Libra coin which is universal.
But hold on a minute. If even a third of those Facebook users were to regularly make payments using Libra, that would account for more people than the population of Europe – all using a new currency that is not within the control of any one democratically elected government, and therefore accountable. That number of users would move into the realms currently supported by AmazonPay or PayPal, particularly if transactions moved beyond P2P and started to facilitate consumer to business payments too.
To my mind this is where Libra represents danger.
If online payments are made easier by Libra, what about omnichannel shopping, so valued by today’s consumers? They want the same payment methods, with the same secure but easy authentication, to work regardless of whether they are purchasing online or in brick and mortar stores. This would mean considerable infrastructure changes for physical retailers if they were to accommodate Libra payments.
Currency conversion at some point
At the point of payment Libra would work regardless of the country and its currency, but the ‘Calibra wallet’ would still need credit, and adding this would require currency conversion from the original source. Let’s think about where that source has come from, in many cases, the user’s salary. Are employers to be expected to pay staff in Libra coins?
Even if all citizens were to agree that Libra cryptocurrency was the way forward, and that no other currency was required, and that debit and credit cards were to be linked to their Libra accounts, there is still the question of how this would be governed. The reality is that if Libra moves forward, we are potentially talking about replacing our currency and compromising our ability to apply stringent policies to our own economies.
Helping the unbanked?
Another claim of Libra is that it will help the unbanked, which amounts to 1.7 billion people worldwide. To support this, a World Bank report indicates that 100 million unbanked people could become financially included if state wages, pensions and social benefits could be paid directly into an account. However, in Germany, for example, banks are already obligated to offer people on very low incomes bank accounts at very low fees – if they want them. They don’t need a technology company to come in and deliver an app on a smartphone to provide this, and it ignores the fact that they either don’t want a bank account or, if they don’t have the money to put into a bank account, they are unlikely to have it to put into their Calibra wallet.
A foretaste of the future
So, just supposing Libra gains traction and becomes a popular mechanism for P2P payments. Those millions of users will be attractive for retailers and an incentive to facilitate payments made using Libra. There would then be demand for Libra coin to be stable and this would require backing with real currency, FIAT currency. Between 5 and 10% of real money, whether that’s dollars, euro’s, pounds or yen, would be provided in credit to support the processing of Libra cryptocurrency which could run to billions, even trillions. For economies that are still recovering from the necessity to support and bail out their own national banks during the financial crisis, Libra might become a very unwelcome (not to mention privately-owned) creditor. Indeed, it seems unlikely that regulators in some European countries would be willing to support this, making it possible that Libra would not be available to their citizens – an invidious position to be in.
We only have to look at the growth of Facebook – zero to 2.4 billion users in fifteen years – to understand the potential audience for Libra and the organisation’s ability to deliver technology that is hard to resist. They argue that it is democratic, just the user and the tech, but herein lies the biggest issue. It is not democratic just because people are using it – it’s like saying that the Coca-Cola organisation is democratic because millions of us drink its product. To be democratic, and importantly to be safe, secure and to ensure our consumer rights are supported, we need rules and we need regulators who have the power to implement those rules. As a citizen of Europe, I would question whether Libra could be implemented in such a way that those rules could be upheld. I would also doubt that any single national regulator would have the power to control an organisation whose financial clout was so powerful, that by taking action against it, they risk the economy of their own nation.