Will Facebook’s Libra Coin Change the Face of Banking?
There’s a lot of talk about the new Facebook Libra cryptocurrency plans, but will they actually take off and will this replace traditional forms of banking?
Facebook’s proposed Libra global cryptocurrency has faced a massive backlash from the banking sector, as well as from politicians who fear that the tech company would have too much influence if it moves into finance. There’s also the question of whether the social networking giant can be trusted given that it has recently been in the center of a scandal relating to alleged Russian interference in the 2016 US election that was in part executed by spreading false information on the social media platform.
But is all this concern really justified? There is no doubt that the Facebook Libra cryptocurrency is going to shake up the financial system if it goes ahead. It will also be a massive boost for advocates of cryptocurrency, who first saw Bitcoin (BTC) as a means to decentralize financial services, but have so far failed to bring the digital currency into the mainstream.
In this post, we’ll look at what Facebook’s proposed Libra currency is, as well as what the potential problems and solutions could come with it. We’ll look at why the banking industry is concerned with the currency, and what effect it will have on the cryptospace in general.
What is Facebook’s Libra currency?
Facebook’s Libra currency was first proposed earlier this year. The digital currency would be used worldwide by the social media platform’s 2.3 billion users, allowing them to make transactions and payments to their friends and to companies without having to worry about fees and other mishaps.
Facebook would be able to do this cheaper than a bank can and would not necessarily be subject to the same regulatory rules as banking institutions. The cryptocurrency could be purchased, traded, and invested in by users and it would cross national borders, becoming a truly global currency.
Why is this so significant?
This is the first time that a major corporation has decided to make its own currency and it represents the first time that a reputable and sizable body has entered into the cryptocurrency space. If this works, then it legitimizes cryptocurrency as a concept and will lead to more companies, banks, and even countries creating their own cryptocurrencies. Of course, if anyone can make their own currency, then that dramatically changes the global financial system and means that nothing can be regulated in the way that it is at present.
Governments and banking institutions are aware of this, and they’re trying to prevent the currency from going ahead due to the shakeup that it could produce. A US Senate committee recently grilled Facebook executives about this, protesting that the company isn’t ready for what it’s about to do. In theory, no one is ready for this.
There’s also the question of what the currency will be tied to. If, for example, the Libra currency gets pegged to the US dollar (as it likely will do) then that could greatly increase the power of that currency on the global stage, essentially letting it influence a new global financial system. This isn’t being taken lightly by countries like China and Russia, who will likely try to produce their own cryptocurrencies to balance the market.
Why are policy makers concerned about Libra?
Banks are subject to regulations. While the Libra currency can’t escape all regulations, it can get around some, and this has banking executives worried. Facebook executives have stated that they might offer people credit, but they won’t have interest or other key things that make a bank a bank, however, many doubt that this will hold up if the currency goes ahead in the way that Facebook wants it to.
Politicians and banking regulators have expressed concern over the fact that the Libra currency will make it harder to regulate financial transactions going in and out of a country, which could make illegal transactions and money laundering easier. They’ve also suggested that this could make economic sanctions harder to impose and that created effective monetary policy would become more difficult. Now, perhaps, you’re beginning to see how this cryptocurrency could disturb the existing global order.
Libra backers are also suggesting that people in developing countries could use the currency instead of their national currency, but this could actually weaken the national currency and thus make the country dependent on an e-currency that is actually pegged to a foreign currency like the US dollar.
The idea that Facebook, a massive tech company, could have such influence over the world of finance is scary to some. Many have pointed out that it’ll give private individuals too much power and that the company will use its existing power and data on social media to gain an unfair advantage.
Facebook have denied this, pointing to the fact that they won’t actually be creating new money, but rather, they’ll be tied to existing government issued money but that they’ll be able to use their new currency to lower transaction costs and bring new services to the table.
On top of this, the company is trying to sell the idea that the Libra currency could bring financial services to the 1.7 billion people around the world who do not have a bank account. This would make the world more integrated and open up many opportunities to people in developing countries and remote areas.
What will Libra do for Bitcoin and other cryptocurrencies?
Advocates of Bitcoin, Litecoin, Ethereum, and other cryptocurrencies have long argued that it is inevitable that digital currency would come along and shake up the existing order. Many were waiting for a major company to back their own currency, and this appears to be their calling card.
Cryptocurrency is now going to be taken much more seriously. This could mean that crypto traders now have the opportunity to broaden their horizons and advance the Blockchain technology that they (and Libra) work on.
The initial announcement of the Libra cryptocurrency sent Bitcoin to a year-high value, and while this has slowed down recently, it remains the case that Bitcoin could continue to benefit from the mainstream adoption of cryptocurrency.
Facebook’s Libra coin won’t be fully decentralized in the same way that Bitcoin is. Users won’t be able to validate transactions, because on a network as large as the one that Facebook would need, this would simply be impossible at this stage. The company has suggested that it will make the currency decentralized in the coming years, but many doubt this.
If crypto is more popular, but the Libra coin can’t offer the full package, then more people will be given a kick to start investing in Bitcoin, which could potentially see the currency explode to new highs. What’s more, Facebook could easily end up in a sort of war with government policy makers over the Libra currency, which could weaken them to the point where Bitcoin is able to knock both parties out of the way and put itself in a much stronger position that it is currently in.
This is what many in the cryptospace are hoping for – and many people would stand to make a sizeable amount of money in this event.
Will Facebook’s Libra currency go ahead?
While Facebook are currently up against a wall of scrutiny, it’s actually very likely that their Libra cryptocurrency will go ahead. The fact that the currency isn’t actually owned by Facebook, but rather an independent group, means that it might be able to combine the various benefits of the currency and pitch it to policy makers in such a way that doesn’t make them suffocate it from birth.
That being said, with the shakeup that this could produce, there is always the risk that lawmakers will see fit to attack Facebook from every feasible direction to prevent the existing financial order from being disrupted.
It’s hard to see what the knock-on effects of the Libra currency could actually be – but don’t forget that other Big Tech companies like Amazon could just as easily jump on to the bandwagon and make their own cryptocurrencies. In fact, Walmart are already trying to make their own version of the Libra currency, and they’re not the only ones who have expressed an interest in this field – JP Morgan are even trialing their own JPM Coin.
Regardless of whether Facebook’s Libra coin is a success or not, the cat is out of the bag now, and this whole cryptocurrency thing isn’t going to go away. Other companies are now going to try to enter the space, and banks and countries might soon follow.
The digitization of currency stands to change the way that we interact with money, and it will have a big effect on our everyday lives. It’s an exciting time and one that we think could have a massive impact on the global financial system and how economic power is distributed. Strap in for the ride.