Libra – Facebook’s proposed cryptocurrency – has faced mounting scrutiny since it was announced in June. Despite this, the company has committed to a launch in the second half of 2020. Read our previous article on the subject for an overview of the project and some initial concerns. This article will consider the biggest hurdles for Libra to–date and what this could mean for the cryptocurrency’s future.
The most overt scrutiny is coming from States. Notably, Germany and France have issued a joint statement committing to blocking Libra’s access to the EU. The Finance Ministers of both nations highlighted risks including financial instability and the loss of the monetary sovereignty of nations when making their announcement. This latter point is interesting. By claiming that currency falls within the sovereign remit of a nation, and then blocking Libra on these grounds, the ministers are equating the proposed payment system to an established form of currency. The actual form that Libra will take, however, is currently uncertain. There is debate among commentators as to whether Libra could be considered money, or whether it is more akin to a security or token. The answer to that question remains uncertain but it is clear that national regulators intend to have a role in determining it.
More recently, the US Congress has also been scrutinising the project. Libra exists in the shadow of the Cambridge Analytica scandal and, based on some of Congress’ questioning, public and political trust in Facebook remains relatively low. There are calls for innovation within this space, which some members of Congress fear could be stifled by regulation. Mark Carney, Governor of the Bank of England, recently supported the involvement of the private sector in this process as well. It could be fair to question, however, whether Facebook is the best figurehead for this innovation. Considering the privacy and transparency concerns that many people now have with the organisation, it is not surprising that some are reluctant to trust Facebook with their finances.
While Facebook is currently the figurehead and founder of the Libra project, it is not the only player. The Libra Association, headquartered in Switzerland, provides the basis for the project. Facebook is one of the organisations involved, and each will back up the project with $10 million USD. Several key members, however, have now withdrawn their support. PayPal led the exodus and were followed not long afterwards by eBay, Mastercard, Visa, Stripe and Mercado Pago. This is reportedly due to the increased scrutiny the project is facing. Specifically, two members of the US Senate banking committee sent a letter to the management of Visa, Mastercard and Stripe to warn them that each company would face “a high level of scrutiny … on all payment activities” if they continued to support Libra. This warning shot evidently had the desired effect. It is notable that the companies choosing to exit the project are those involved in the financial services sector. They are, as such, already under significant regulatory scrutiny, which provides grounds for their departure. While their exit is a blow to Libra, it does not therefore necessarily equate to a criticism of the project itself.
It has been a rocky road for Libra and it is fair to assume that it won’t be getting easier. If Libra is to achieve its mission and become a global payment system, a lot of work will have to be done to satisfy the regulators that it is safe, transparent and reliable. There is time to do this. The Libra Association recently met for the first time, and the final form of Libra is not fixed. Facebook has stated a willingness to be flexible with the form the project takes and there is still significant private sector backing. Collaboration and open communication between stakeholders and interested parties could result in something with the potential to seriously disrupt the global currency system. Alternatively, resistance might be too strong and the project might lose more support, bringing it all to an end. Only time will tell.
Article written by Vincent Guereca-Adair