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Facebook Announces Libra – The Digital Currency It Believes Could Shake Up Global Banking

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Facebook has today announced its plans to launch a digital currency the social media giant is calling Libra. It believes Libra could revolutionise global financial services and particularly payments.

When Bitcoin was launched 10 years ago, the first cryptocurrency’s white paper talked about a technological innovation that would make financial services egalitarian. Its peer-2-peer blockchain technology would remove the need for central authorities like banks and payments processing companies. And Bitcoin’s forever capped, fixed number of total units in circulation would end the eroding effects of inflation through money printing – something many blame for perpetuating global financial inequality. Personal interest would be wiped out of the inherent structure of modern financial systems – or at least so the case was put.

Fast forward to June 18th 2019 and the promises made by Facebook founder and CEO Mark Zuckerberg’s at the launch announcement of Libra sound remarkably similar. To summarise and paraphrase, Zuckerberg today promised that within a year Facebook’s Libra would be a global digital currency that:

  • Will make sending money anywhere in the world as easy as sending a message.
  • Would mean transfer fees, delays and other barriers to quick, easy cash flow are a thing of the past.
  • Offer those in the developing world basic financial services and protection against aggressive inflation.
  • Spark a wave of innovation in financial services comparable to the internet’s impact on information sharing, retail and general services.

Facebook’s pitch is that Libra, named after the Latin word for a unit of mass and the root of the word ‘lira’ or pound, in contemporary romance languages, will help empower billions worldwide. If the company gets it right the potential does appear to be enormous. Facebook has 2.4 billion users. Each of those converting a small amount of their cash in Libra would immediately make it one of the world’s most liquid currencies.

The plan is that the buying, selling, holding, sending and receiving ‘libras’ will be done through Facebook’s Messenger app or WhatsApp. A standalone app purely for managing and transacting libras is also planned.

The pitched advantage over bitcoin and other cryptocurrencies is that libra transactions will take seconds not minutes and cost next to nothing. Facebook is building a digital architecture that it says will allow the infrastructure to handle 1000 transactions in a second. That will be increased. Bitcoin’s blockchain allows for a maximum of 7 transactions a second. The currency will be backed by a reserve which will be funded by the actual cash users swap for libra units. The hope is this will prevent the price volatility that has hampered main stream adoption of Bitcoin and other cryptocurrencies.

In what can be viewed as an acknowledgement of trust issues over its record around the misuse of personal user data and the role of its social media platform in the spread of misinformation, Zuckerberg said that Facebook planned to outsource the running of Libra to respected figures from the worlds of finance, technology and NGOs.

But if transfer fees will be close to zero, what’s in for Facebook to fund the launch of Libra? It would be expected to boost advertising revenue by making the purchase of ads faster and easier. It could also be a new source of data used to improve ad targeting. It would also help Facebook’s messenger apps catch up with Tencent’s WeChat. It already offers payments transfers and some other basic financial services.

Tencent was gearing up to take WeChat global, posing a direct threat to Facebook in the West. However, that strategy is on hold amidst the complication of fraught U.S.-China trade relations and Facebook see a window of opportunity to regain ground and pin WeChat within the confines of the Chinese-speaking world.

It’s early days but over the next year the world be watching and waiting to see if a social media platform turns out to be the central actor in a global financial revolution.




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