Facebook Cryptocurrency in Trouble
Facebook no doubt rules the social media roost, but its ambitious cryptocurrency plan, Libra, seems to have hit a roadblock.
In June of 2019, Facebook formally announced its plan to enter the cryptocurrency market with Libra. The whitepaper on Libra was released, and the currency set for a 2020 launch. You can refer to our earlier blog post – Will Facebook Change The Cryptocurrency Market? – to learn about Libra’s background.
But with G7 and G20 raising concerns over cryptocurrencies, it appears unlikely that Libra will see the light of day any time soon. So to try to determine what the future holds for Libra, we will examine the path it has traveled up to now.
The idea behind Facebook Libra
Libra was intended to provide a stable global currency and financial infrastructure to empower billions of people. The currency would have been built on a secure and stable open-source blockchain, which was to be governed by an independent association and backed by a reserve of real assets.
The aim was to create better and cheaper access to financial services for people, regardless of their financial status, region or standing.
Facebook saw cryptocurrencies as both a threat and an opportunity. Cryptocurrencies can disrupt market dynamics – it can alter the way goods and services are bought and sold by eliminating transaction fees that are synonymous with credit cards. This could affect Facebook’s ad business, which influences purchases. For example, if Google or a start-up introduces a popular coin and starts monitoring the transactions, they could easily learn what people buy.
Once they know the buying pattern, they could have tried to influence buying decisions, which would have affected the billions of dollars annually spent on Facebook marketing. On the other hand, for a population of 1.7 billion who do not have a bank account, it would have been a perfect financial service alternative that offers them an online identity, as well. And, this is what Facebook aspires to become.
The G20 warns of stablecoins
But why has the G20 warned of stablecoins?
Recently the group of G20 finance leaders agreed to put in place strict guidelines for cryptocurrencies like Facebook’s Libra. They have warned that issuance of stablecoins – such as Libra – should not be allowed until all of the global risks have been addressed.
The agreement came after a G7 working group warned of stablecoins. Stablecoins are digital currencies that are generally backed by traditional money and other assets. The working group warned that if stablecoins are launched on a wide scale, it could disrupt the world’s monetary system and financial stability.
The financial chiefs of the G20 group did not doubt the potential benefits of stablecoins, but they said that their wider use could pose serious policy and regulatory risks.
The G20 group finance leaders wrote in a statement, “Such risks, including in particular those related to money laundering, illicit finance, and consumer and investor protection, need to be evaluated and appropriately addressed before these projects can commence operation.”
Haruhiko Kuroda, Governor of the Bank of Japan, said that the G20 group is expected to start a debate on how to regulate stablecoins after it receives proposals from institutions like the Financial Action Task Force (FATF) and the Financial Stability Board (FSB). A report on Stablecoins is expected to be submitted by the FATF and FSB in 2020.
What this means is that Facebook is unlikely to meet its deadline for launching Libra in 2020.
According to Kuroda, “Policymakers have expressed concerns over various risks Stablecoins pose. Until they are addressed, stablecoins should not be issued. That was something agreed by the G20 members.”
Also, the G20 group has requested the International Monetary Fund (IMF) scrutinize the economic implications, which includes monetary sovereignty issues.
“Some emerging countries have concerns on what could happen if stablecoins backed by a huge customer base become widely used globally,” Kuroda said.
According to Kuroda, this is not only an issue related to emerging economies, but could have a wider impact on monetary policy and financial stability.
The G20 agreement raises concern among stakeholders over stablecoins like Libra, more so when more than a quarter of its founding members left the project. It is believed that many of the Libra stakeholders departed due to the serious concerns raised by the policymakers.
Also, the Finance Minister of Germany has raised concerns about Libra, and said that the issuance of new world currency should be prevented.
Kuroda also said that policymakers are expected to debate how to make the current cross- border settlement and payments systems better. But the settlement issues are to be confined to the private sector only, and there has been no discussion on the issuance of digital currencies by the central banks.
Facebook may not have Libra, but it has Facebook Pay
As the chorus against Libra gained momentum, it appears that Facebook is not waiting for Libra to launch, having in the meantime launched Facebook Pay.
Though not a virtual currency, Facebook Pay is a payment system that allows you to use debit cards, credit cards and PayPal.
Using Facebook Pay, users can make purchases, donations or send money to individuals. Users can utilize Facebook Pay on all the apps in Facebook’s arsenal – Facebook, Messenger, Instagram and WhatsApp. Such existing payment platforms as Stripe and PayPal will process the payments.
Facebook Pay was launched in the United States in November 2019 on Facebook and Messenger. Facebook has yet to announce a date for extending this facility on its other apps or in other countries.
With Facebook Pay hitting the market, it means that Facebook had a backup plan in place to counter the unscheduled delay of Libra.
A look at the features of Facebook Pay
You can select the apps on which you want to activate Facebook Pay. For example, you can select only Messenger, or activate it on all Facebook apps. One attractive feature of Facebook Pay is that you only have to select the preferred payment method once. For example, once you select PayPal or a Visa debit card, you don’t have to populate the payment information form every time you make a purchase or transfer money.
In the United States, Facebook Pay is offering real-time customer service to its users. Facebook indicates that it plans to gradually roll out Facebook Pay to other regions.
According to Facebook, Facebook Pay is designed to store and encrypt card and bank account numbers securely, and can detect unauthorized usage. Users can add a PIN or use their device’s biometric features (facial recognition) to transfer money. Facebook claims that it does not receive or store this biometric information.
The take-home message
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