Facebook appears to be going ahead with plans to launch its own digital currency, Libra, early next year.
According to a report from the Financial Times, the social media giant hasn’t abandoned its plans for Libra despite strong resistance from regulators. It’s been over two years since Facebook first started working on the project, which was initially touted as a cryptocurrency.
However, after months of regulatory scrutiny, the project now more closely resembles a US dollar-backed stablecoin or digital payment platform. The project will initially launch in the US only and be backed one-to-one with the US dollar, differing from the original plan which involved a basket of multiple foreign currencies.
Lack of approval
Despite plans to go ahead, approval from Swiss regulator FINMA remains unconfirmed and Facebook is yet to secure a New York BitLicense. There are also ten US states that are yet to give the project their consent. Facebook seems insistent on running the project on blockchain despite it not being a necessity, which means it requires a BitLicense
The Facebook digital currency will be stored on its proprietary Novi wallet which, is allegedly completed now and ready to launch. However, several concerns remain – most notably, whether the project threatens to destabilize global economies by holding too much physical cash in reserve. Facebook would essentially become a massive bank, with more customers globally than any other single financial institution.
Since main project lead David Marcus has refused to run a ‘sandboxed’ pilot of the project, it’s difficult to predict the impact. It’s likely the amount of Libra available will need to be heavily restricted, at least initially.
Another massive issue facing the Libra project is the lack of trust in Facebook following the Cambridge Analytica scandal. To be successful, Facebook is relying heavily on regaining the trust of its users, particularly with financial information involved. Many of the original partners have already pulled out of the project, including PayPal, which will face heavy competition from Libra if it succeeds.
In essence, Libra will simply be a USD stablecoin launched to a massive pre-existing userbase. This is the main cause of concern for traditional financial institutions and regulators, with Fabio Pancetta of the European Central Bank (ECB) recently highlighting the dangers of stablecoins to the global economy.
“As I have argued previously, stablecoins raise concerns with regard to consumer protection and financial stability. In fact, the issuer of a stablecoin cannot guarantee the certainty of the value of the payment instrument it offers to consumers. Such a guarantee can only be provided by the central bank,” Pancetta said in an ECB speech on November 27, 2020.
To tackle the growing threat of non-government issued stablecoins, several countries have begun investigating the formation of a Central Bank Digital Currency (CBDC). This would allow for quick and easy online payments and potentially render projects Libra redundant.
Either Facebook doesn’t see this as a threat or they know something we don’t. More than likely, they’re relying on the fact that people will find Facebook more convenient simply because they already have it downloaded and populated with an extensive collection of their contacts.