Facebook to launch digital currency, Libra, in effort to create new global payment system

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Facebook is going into the banking business.

The social networking company has announced plans to help launch a digital currency in 2020, marking one of the company’s most aggressive moves yet to push beyond digital advertising.

A new nonprofit group based in Geneva, the Libra Association, will oversee the currency, called Libra. It will initially be backed by Facebook’s expertise but governed by 28 founding partners including payment firms Visa and Mastercard and internet companies eBay, Spotify, and Uber.

Facebook said that it wants the currency to be available starting the first half of next year and that it believes many of the 2 billion people who are already on the company’s services will one day regularly use the new currency to buy things or send money internationally.

Libra, will be launched alongside Calibra, a digital wallet for securely storing the currency that can be used as a stand-alone app or in WhatsApp and Facebook Messenger. Previous reporting has suggested that Indian WhatsApp users will be first to have access to the cryptocurrency, for no- or low-fee money transfers, and Facebook has apparently, and uncharacteristically, been wooing regulators and central bankers around the world to smooth the coin’s landing.

The Libra blockchain — that is, the shared ledger of all transactions made in Libra — will be maintained by a network of nodes,
which verify transactions and store the continuously updated record. These nodes will be operated by outside companies (early partners seem to include Mastercard, PayPal, Uber, and Booking.com), each of which will reportedly pay $10 million for the privilege, and the money from these licensing fees, the Information reports, will be used to back Libra with a “basket of currencies and low-risk securities from various countries,” keeping its value stable.

How, precisely, users will exchange Libra for physical currency remains to be seen, though the most likely option is that Facebook partners with a cryptocurrency exchange, and the Information reports that there are plans for “physical terminals similar to ATMs.”

Facebook to launch digital currency, Libra, in effort to create new global payment system Facebook is going into the banking business. The social networking company has announced plans to help launch a digital currency in 2020, marking one of the company’s most aggressive moves yet to push beyond digital advertising.

The coin itself will be governed by an independent foundation, the Libra Association, consisting of representatives from Facebook, financial institutions, nonprofits, merchants, venture capitalists, and the companies running the nodes. Facebook is already working on creating its own private supreme court, after all; why wouldn’t it want its own private, independent central bank as well? This highly centralized structure is very different from that of “traditional” cryptocurrencies like bitcoin, which spurn centralized authority and allow anyone to set up a node for free.

And unlike Libra, whose value will be fixed to the aforementioned basket of currencies and securities, most cryptocurrencies don’t maintain fixed exchange rates — which is exactly what makes crypto such an exciting and volatile speculative market.

This is the medium-term plan for Libra: To compete not just with money-transfer businesses (worth about $689 billion) but with credit-card companies, using cross-border payments as the beachhead for all payments everywhere. You receive a no-fee Libra payment from an expat family member, and then use that Libra to pay back a friend, who in turn uses the Libra to pay for a Chicken Maharaja Mac at the local McDonald’s. Facebook here is openly mimicking WeChat, which is both China’s largest social network and also the country’s ubiquitous payment app, an utterly dominant Facebook–WhatsApp–Apple Pay–Venmo– Seamless hybrid.

It’s easy to see why Facebook might want this. There’s a familiar business model in merchant fees (though, if you’re levying payments in the currency that you yourself mint, “taxes” might be a better word), and payments fit much more naturally than advertisements in the privacy-focused, chat based future that Mark Zuckerberg claims is coming for his company.

Facebooks announcement comes at a time when the People’s Bank of China has been amassing blockchain and digital-currency patents as it develops its own cryptocurrency — loosely pegged to a basket of other currencies, just like Libra — which could help it more efficiently monitor and control capital flows.

 


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