Facebook changes its Libra plans to include more cryptocurrencies
After seeing the departure of key members of its non-profit development body – and facing regulatory pressure – Facebook appears to be ready to be more inclusive in its cryptocurrency plans.
Facebook’s plans to launch its Libra cryptocurrency tied to cash appear to be making a course correction, as the social network now appears to be planning to support not only its own digital token through its online wallet but others offered by central banks.
Libra, a cryptocurrency transacted across an immutable blockchain ledger, was expected to be a single currency for all global transactions. It is now expected to be just one digital payment method for Facebook, whose plans now include the support of government-backed fiat-money, such as the U.S. dollar and the Euro, according to Bloomberg reports.
Without directly addressing the addition of more digital currencies, the non-profit Libra Association, with whom Facebook is developing the cryptocurrency transaction network, said its plans have not changed.
“The Libra Association has not altered its goal of building a regulatory compliant global payment network, and the basic design principles that support that goal have not been changed nor has the potential for this network to foster future innovation,” Dante Disparte, head of policy and communications for the Libra Association, said in a statement.
Both heightened regulatory pressure and the exodus of more than a half dozen initial supporters of the Libra project is likely at the root of Facebook’s decision to be more inclusive.
When first announced last June, the Libra Association had 28 initial members. It now has 22.
In October, PayPal, Visa, Mastercard, eBay, Stripe, Mercado Pago and Brooking Holdings backed away from participation on the Libra Association. In January, telecommunications operator Vodafone also disconnected from Libra. Vodafone said in a statement it was not ruling out the possibility of working with the Libra Association in the future.
“Although the makeup of the Association members may change over time, the design of Libra’s governance and technology ensures the Libra payment system will remain resilient,” the Association said in a statement at the time.
Calibra, the Facebook subsidiary in charge of the launch of Libra and its associated online digital wallet, said that from the beginning the plan for the cash-backed cryptocurrency was to profit from advertising and not the sale of private data. And so users of the social media site and their financial information will remain separate on the financial transactional network.
James Wester, an IDC researcher, said the Libra Association has drawn so much negative attention from regulators that it makes sense for members to put some distance between themselves and Project Libra.
“I also think the rollout of Project Libra with Facebook as the face of the effort has been handled poorly, and the issues with regulators should have been anticipated,” Wester said in an earlier interview.
Much of the regulatory pushback has involved antipathy to Facebook, Wester said, but some may also have been from a lack of understanding of cryptocurrencies, digital currencies and payments in general.
The Federal Reserve is investigating the potential of a central bank digital currency (CBDC) as the backbone for a new, secure real-time payments and settlements system.
The move toward a form of government-backed digital currency is being driven by Fintech firms and a banking industry already piloting or planning to pilot cash-backed digital tokens, according to Lael Brainard, a member of the U.S. Federal Reserve’s Board of Governors.
Establishing a digital coin backed by fiat currencies would enable near rea-ltime funds transfers and eliminate much of the cost from fees associated with clearance and settlement.
Immediate access to funds could be especially important for households on fixed incomes or living paycheck-to-paycheck, when waiting for funds to be available to pay a bill can mean overdraft fees or late fees that compound. Similarly, for small businesses, immediate access to funds from a sale to pay for supplies can be a game-changer, Brainard said.
The Fed is not alone in its efforts.
The former chair of the Commodity Futures Trading Commission (CFTC) has partnered with Accenture to create the non-profit Digital Dollar Project, which plans to explore the creation of a U.S. CBDC.
“Frankly, Facebook and the Libra Association should have started with this ‘currency-inclusive’ approach,” said Avivah Litan, a Gartner vice president of research.
“Their former approach rightfully made people nervous and indirectly implied – rightly or wrongly – that Facebook and its partners were trying to take over much of the world’s financial system by creating their own currency.”
Facebook always planned to link its digital token fiat currency, but it still gave regulators pause because they didn’t know what it would do to their ability to control their own nation’s money supply, according to Litan.
The new plan by the social media giant is more conservative and better for consumers, businesses and governments, she said.
“They are giving users a choice of currency, including their own fiat currency, which many users may prefer. Likewise, businesses won’t have to have a separate set of books and accounts for the new currency – now, they will have choice and most will likely want to continue working with fiat currencies,” Litan said.
Stablecoins, or digital money backed by cash or another asset, will enable governments to have visibility into their fiat money supply instead of trying to trace it through the Libra currency and try to figure out the impact on their own, Litan added.
Clifford Rossi, a finance professor at the University of Maryland’s Robert H. Smith School of Business, said Facebook’s entry into the banking marketplace puts added pressure on commercial banks at a time when they are already scrambling to learn how to compete against nimbler, tech-savvy fintech companies.
In July, Jerome Powell, chairman of the U.S. Federal Reserve, said he had “serious concerns regarding privacy, money laundering, consumer protection, financial stability… [and] I don’t think the project can go forward” without addressing those concerns.
The Fed created a working group at the time to the project and coordinate with central banks around the world.
“A digital currency like Libra is inevitable,” Wester said. “Additionally, the disruption of portions of the payment industry—including parts that Mastercard and Visa are very interested in – by distributed ledgers and blockchain is also inevitable. Companies like Mastercard, Visa, Paypal and others are aware of that. They will continue to work on the technology, and I wouldn’t be surprised to see them come back around to the Libra Association if it begins to take off.”