Facebook’s Libra faces many hurdles
- The social media giant’s attempt to set up its own digital currency has raised the eyebrows of regulators, not least in China
Facebook is expected to launch its ambitious Libra digital currency within the year to upend the world of finance. Given its technical prowess and global platform, few doubt it can deliver. Visa and Mastercard have already signed on and Uber, Lyft and eBay will join. Its greatest hurdle will be to overcome the scepticism of financial regulators.
The basic idea is attractive. Compared with traditional banks, it can process transactions at much lower cost and make it more convenient for consumers to move money worldwide. It will offer bank-like services to the poor, whom traditional banks will not serve.
But the universality of its platform also poses serious questions. Although Libra will use blockchain technology, it will not be like bitcoin, which is decentralised. At least initially, records will still be kept by a select group of designated agents. Its value will be backed by a basket of currencies and other assets. But can Facebook and its partners be trusted with so much information?
Facebook is still trying to extricate itself from scandals in which its platforms were used to spread disinformation while massive user information was leaked, during the Brexit campaign in Britain and the 2016 presidential election in the United States.
It is hardly surprising that both the international Financial Stability Board and Britain’s Financial Conduct Authority have warned that Libra will not be allowed to launch without close scrutiny and supervision. The US Federal Reserve was initially receptive, but chairman Jerome Powell has recently taken a tougher stance, saying consumer protection and regulatory supervision need to be considered carefully. Facebook has argued that services under Libra are different from those of traditional banks and therefore should be free of the same stringent regulations.
Meanwhile, Libra will not be welcome in China. Mainland regulators are suspicious of its potential, which could strengthen US financial dominance. As the trading of cybercurrencies is already banned, Beijing may loosen restrictions on financial services as well as developing its own cybercurrency, to maintain its global lead in mobile payment and e-commerce.
Despite the promises, Libra faces many hurdles.
