18 July 2019 #Information Technology
When Facebook launched its new digital currency last month, it may not have received the welcome it wanted but it certainly got the welcome it expected. With its public perception in tatters following the Cambridge Analytica scandal and accusations of manipulating the 2016 US Elections, why launch a financial product in a seemingly competitive, volatile and unregulated environment? Well, whilst the abundance of negative Facebook articles continue to roll in, people continue to use Facebook and continue to feed them data. It is for this reason, that the answer to the above question might as well be, “why not?”
Facebook hopes that its billions of users will allow Libra to become their preferred financial host and payment system across the plethora of Facebook entities. Set for a 2020 launch, the key concept is that paying for everyday amenities will become as easy and as cheap as sending a text message. Facebook’s white paper accompanying the launch of its latest product pointed sceptics to the 1.7 billion people who don’t have access to a bank account and how expensive it is for many individuals to send money to their families. Complicated registration, verification and regulation of those 1.7 billion people aside, the need for a payment solution is there, as is an arguable case for shaking up the global payments system, a statement echoed by outgoing Governor of the Bank of England, Mark Carney.
Another positive: Libra can be defined as a ‘Stablecoin’. This perceived stability comes from the fact that its value will be attached to a host of long established and usually stable currencies including the Dollar, Pound, Yen and Renminbi. Pinning the cryptocurrency to the more traditional currencies will help retain its value and reduce volatility. By contrast, cryptocurrency’s posterchild Bitcoin isn’t pegged to anything. This means that Bitcoin is as valuable as people believe it is, hence the huge swings in value from $3,000 to $15,000 and back again.
Whilst this may not sound too alarming as of yet, key financial advisors and experts have been quick to raise further issues. US Treasury Secretary Steve Mnuchin recently told a press conference that he believed “money launderers and terrorist financers” might use the currency – though it would be naïve for us to dismiss Facebooks post Cambridge Analytica security efforts, right? Hmmm. President Trump has stuck his oar in stating he feels uncomfortable about the e-currency, and Democratic Congresswoman Maxine Waters has requested Facebook “agree to a moratorium on any movement forward on developing a crypto-currency until Congress and regulators have the opportunity to examine these issues and take action”.
All critics have cited Facebook’s long – and potentially growing – history of data controversies but, realistically, it is just a process of delaying the inevitable. Whilst there are rumours that Facebook’s blockchain is still under development, there is no doubt it possesses the financial backing and resources capable of becoming a significant financial force. Facebook knows that it is not a case of if they allow the use of Libra, but when.