here were more than 2,400 cryptocurrencies in circulation by June 2019, with further launches on a daily basis. Most were nearly worthless, had been heard of by virtually no one, and never would be. So when yet another – called Libra – was announced in a white paper on June 18, you might have expected it to attract no more attention than any of the others.
But from the moment of its launch, Libra received a huge amount of attention. The project made many of the same promises most new digital currencies tout: it would work more efficiently than existing payment technologies, and it would avoid the huge spikes and falls in value that made Bitcoin, the first and best-known cryptocurrency, such a roulette wheel. More eye-catching was its promise to target billions of the world’s unbanked – people with little or no access to the global financial system – so as to open up huge new business and work possibilities for at least some of the world’s poor, and revolutionise the global financial system.
The main reason people took notice this time was due to one of the main backers: Facebook. Freshly out of a seemingly endless series of data privacy scandals, the social media giant was now appearing as the lead partner in a plan to create a new global currency, alongside a coalition of other major tech, finance and commerce companies, and was promising to roll the whole thing out in early 2020.
In the weeks and months after its announcement, Libra was attacked seemingly from all sides. Cryptocurrency fans said Libra wasn’t a real cryptocurrency, as it breaks some of the fundamental principles promoted by the community’s often techno-anarchic fan base – including the important distinction that Libra transactions still rely on trust rather than mathematical proof. Others criticised Libra as a corporate power grab. Economists warned it could challenge countries’ control over their own monetary policy and so undermine democracy. And lawmakers and regulators around the world lined up to say they’d be launching investigations or taking action against the fledgling currency, before it had even launched.
In early October, PayPal, one of 28 founding members of the Libra Association (set up to manage the cryptocurrency) withdrew from the project. A week later, e-commerce platform eBay and payments companies Visa, Mastercard, Stripe and Mercado Pago also backed out, leaving only one payments partner, fintech company PayU.
On October 23, Facebook CEO Mark Zuckerberg was brought in front of US Congress to answer questions about Libra from a largely frosty House Financial Services Committee. In an opening statement, committee chair Maxine Waters threw down the gauntlet by restating her call for a moratorium on Facebook’s development of Libra until Congress could properly consider the issues it raised, and suggesting that Facebook focus on existing problems. “I’ve come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project,” she said.
Listing various concerns with Facebook, including its poor diversity record and scandals around political advertising, Waters charged that Zuckerberg was “willing to step on or over anyone, including your competitors, women, people of colour, your own users, and even our democracy to get what you want”.
In his own testimony, Zuckerberg recognised that he was not the ideal messenger for the Libra project, noting: “I’m sure there are lots of people who wish it were anyone but Facebook who was helping to propose this.”
For the user, Libra is a relatively straightforward proposition. Like any other cryptocurrency, you could buy up a certain number of Libra coins in exchange for a certain amount of local currency, such as US dollars or British pounds. You would exchange currency for Libra through a digital wallet, one of which – the Calibra wallet – is already being developed by Facebook’s subsidiary. Calibra will have its own associated app and will also be integrated into Facebook’s Messenger and WhatsApp, which the company claims will make it possible to send someone Libra as “easily and instantly as you might send a text message”.
For each Libra coin created, the Libra Association promises to buy up an equivalent amount of one of a basket of existing currencies, stabilising the value of the currency and making it more usable for everyday transactions as opposed to speculation (a single Bitcoin has in recent years been worth as little as $3,194 and as much as $12,444). The “crypto” element is in Libra’s distributed ledger – a usage of blockchain – which will verify each person’s stake (the quantity of the currency they keep).
Beyond the usual regulatory concerns on issues such as anti-money laundering and fraud prevention, Libra could present a threat to local economies. This is especially a risk in places where people don’t trust their governments or currencies much – where many of the world’s under-banked live. Salami says that people may as a result prefer to use Libra in place of national currencies. “For those countries, it will then become very difficult to conduct monetary policy and use monetary policy as a tool to either stimulate their economies or not. If that happens, then we have a real serious problem here for those countrie
It’s no surprise that banking regulators across the world have taken a strong interest in the development of Libra, with representatives from 26 central banks across the world meeting to question Libra executives in September 2019. The Bank of England has warned that Libra must be held to the same standards as traditional payments providers, and France and Germany have said they will block the currency from operating in Europe as long as concerns persist. In his testimony to Congress, Zuckerberg promised that Facebook “will not be part of launching the Libra payments system anywhere in the world until US regulators approve”.
The departure of its main payments partners, however, means Libra no longer has their experience of the extensive regulatory requirements of moving money – a significant challenge that makes Libra’s 2020 launch date seem increasingly unlikely.
As the controversy rages on, Bill Maurer, the dean of social sciences at the University of California, Irvine, sees a missed opportunity to have necessary discussions about important issues with the world’s financial systems and the impacts on democracy. “In a way, I think, unfortunately, because it is Facebook, it’s just, ‘get them in front of us on the TV cameras, and let’s yell and scream at them about privacy and security’,” he says.
Libra’s Dante Disparte, who says he’s never even met Mark Zuckerberg, shares this frustration. “The drama candidly is in part because the size of some of the organisations involved scares people,” he says. “There’s also an educational requirement here because you’re leveraging things like blockchain and cryptocurrencies, and you’re touching a very heavily regulated space of the financial system. Every one of these domains has raised very fair and very reasonable questions.”
Disparte insists that for him Libra is all about the mission: increasing access to the financial system for those outside it. He is scared of what happens if Libra fails. Many are terrified of what happens if it succeeds.