In the second half of 2019, Facebook revealed concrete plans on its intention to extend its operation and services and embark on a project to produce its own virtual currency, ‘Libra’. This came months after CEO, Mark Zuckerberg, announced his intention to understudy the ‘positive and negative aspects’ of cryptocurrency. Perhaps what is even more interesting is the way in which Libra is set to operate as a ‘permissioned’ cryptocurrency or ‘Quasi-currency’, as some commentators have termed it. This means that Libra is set to operate on the underlying blockchain technology which powers other cryptocurrencies. It ‘allows a few trusted entities keep track of the ledger’ as Lopalto asserts in an article, while at the same time being pegged to private investors, fiat currency (like the US Dollar), or as government-backed security (like a bond). Essentially, Libra is intended to not only change the way the financial services industry operates, but also change the cryptocurrency space, giving more opportunities for money launderers to carry out their activities undetected.
Cryptocurrencies are digital representations of value, which are not issued by a central bank or a public authority, neither are they attached to legal tender. Cryptocurrencies, its development originating back to 2009, have over recent years, become a global wave that has arguably shaken up traditional payment systems and conventional financial systems. Particularly, they have been described as ‘a new and powerful tool for criminals, terrorists, financiers and other sanction evaders to move and store illicit funds out of the reach of law enforcement and other financial agencies’. This is largely due to the pseudonymity of cryptocurrencies as well as the ease and low transaction costs it incurs for its users, being specifically praised for the speed and efficiency of using them whilst making transactions. It is on this ground Facebook’s libra cryptocurrency intends to take advantage of and make even more beneficial and advantageous to global cryptocurrency users.
Facebook is a global social media platform, having over 1 billion users worldwide. With this new technology allowing users trade, buy and sell via its apps as well as WhatsApp, regardless of wherever the users are based in the world, this introduces an unnerving need for global and national lawmakers to tighten their grasps on anti-money laundering laws. This is based off the fact that money laundering is a global phenomenon and what Facebook’s libra presents is an opportunity to make money laundering activities even more global than it currently is, making launderers harder to detect as each jurisdiction possesses different levels of crypto-regulation. Libra progressively creates another digital channel to allow money flow through undetected and with ease, when there are numerous other similar digital channels. As such, the creation of another new technology does nothing to alienate the global problem of money laundering, especially in an era of cryptocurrencies, but escalates the phenomenon. This, therefore, creates concerns for Anti-Money Laundering regulations both globally and nationally.
Commentators on this further explain that the goal for Facebook’s libra is to be ‘more useful than any national currency, accepted in more places and with fewer complications’. Libra, therefore, intends to remove the complexities typically associated with other cryptocurrencies by making transactions more stable and less complex, with the long-term potential for it to be allowed under more jurisdictions in comparison to the popular bitcoin. Ultimately, this technology is intended to remove certain problems within traditional banking and financial institutions, thus ‘democratising financial services’ to ensure stability. This supposed stability is meant to be found in the fact that Libra will either be pegged to fiat currencies or government-backed securities as previously mentioned, whilst also assigned to pseudonymous wallets, which would allow transfers to ironically be done through ‘public key operations’. What this means technically is that this new cryptocurrency intends to combine elements of both traditional financial systems with that of the blockchain technology in order to ensure more ease and less complications with making transactions. Although this produces more restrictions compared to how the bitcoin operates, it is in the long run foreseen to produce many benefits to cryptocurrency users.
However, Facebook’s Libra project has expectedly been met with oppositions particularly from both American regulators and international regulators. The cryptocurrency phenomenon is still relatively new to global regulations and appears to be a hard nut to crack under financial systems and financial regulations. Evidently, Facebook’s Libra comes at a time when there is barely any form of regulation for other pre-existing cryptocurrencies. This situation creates even more concerns for regulators as with this new development, there is more pressure to lay down regulation for virtual currencies to prevent the threats it presents. These threats range from money laundering, fraud and other cyber-financial crimes related tools. As such, what many jurisdictions have proceeded to do is either outrightly ban its engagement or alert its citizens of the risks associated with cryptocurrencies. This is usually backed by some unwillingness of its government to protect users of this currency. Facebook’s Libra does nothing to quell this widespread caution, but merely causes more concerns for regulators, given Facebook’s past fling with data breaches and privacy concerns.
It is left for regulators to consistently monitor developments on Facebook’s new currency, especially with the new announcement on Facebook’s intention to comply with AML regulations as well as banking regulations whilst developing this new technology. As such, what determines the global adoption and use of Libra is time and potential regulatory changes to accommodate this new development.