Facebook, Inc. (FB) has big plans to unveil its new platform cryptocurrency next week, with a launch slated for next year, according to a detailed report by the Wall Street Journal. Users of the social media platform will be able to send the digital coin, called Libra, to one another, and they will also be able to use it to make purchases both through Facebook and across the internet more broadly.
In order to build support for the new coin project from its earliest stages, Facebook has enlisted the financial backing of more than a dozen companies across the financial, e-commerce, tech and telecommunications industries. Push-back from regulators and digital currencies advocates alike, however, has put into question when, and indeed if at all, Libra will make its public debut.
- Libra is the much-hyped digital currency proposed by Facebook to be used within its online ecosystem.
- Libra is intended to be a 'stablecoin' that is pegged to a basket of global currencies including the US dollar, Euro, and Yen.
- Heavyweights in the payments space such as Mastercard and PayPal, among others, have signed on as corporate partners and sponsors of the Libra project.
- Regulators in the EU and US, however, have raised concerns and red flags over Libra's potential risks and may squash its release.
Corporate Backers of Libra
Among the various companies signed up to invest around $10 million each in Libra are credit card giants Visa, Inc. (V) and Mastercard, Inc. (MA), and ridesharing powerhouse Uber Technologies, Inc. (UBER). The money raised by members of the consortium will help to fund the launch of the coin. According to the report, Facebook has sought to raise as much as $1 billion in support of the new cryptocurrency project. Payment services company PayPal (PYPL) had been on board until it announced it was pulling out of the venture on October 4th, 2019. According to reporting from the Wall Street Journal, Visa and Mastercard are also reconsidering their involvement with Libra.
What It Means
Since the beginning of the cryptocurrency craze about two years ago, enthusiasts have anticipated the entry of major social media companies like Facebook into the digital coin space. Facebook has reportedly been developing Libra for more than a year, and few details about the project have been available to the public. One thing that is known is that Libra will be pegged to a basket of government-issued currencies in an effort to preemptively counter the extreme volatility which has plagued other digital coins.
Facebook's decision to launch a cryptocurrency at this stage may seem to be an odd one. Although interest in Bitcoin and other digital tokens was intense back in 2017, prompting massive surges in token prices and a wave of altcoin launches, by and large the consensus among investors has been that cryptocurrencies did not manage to break into mainstream use to the degree that was anticipated. Libra has a leg up on other coin offerings, as Facebook can tap into its enormous user base comprised of billions of accounts. However, regulatory challenges in the U.S. and other parts of the world remain an important barrier, and there is also the ongoing concern about the use of cryptocurrencies for money laundering and the financing of terrorist organizations.
What the Future Holds
Facebook has already built in layers between itself and Libra. For instance, neither Facebook nor the member companies of the consortium, called the Libra Association, will control the coin directly, although they may help to play a role in the development of the Libra payments network by acting as nodes to verify transactions. It's perhaps no surprise that Facebook is careful to protect itself from potential regulatory issues related to its new cryptocurrency, as the social media giant has been under intense pressure to deal with various privacy concerns. Facebook will release a detailed whitepaper on Libra later this month.
The potential risks to both the public and the established financial system are not lost on regulators as authorities across the globe have sounded alarm bells over Libra and other cryptocurrencies. This summer, Libra Association members met with officials from 26 central banks, according to a Financial Times report. EU Commission vice president Valdis Dombrovski recently expressed concerns over financial stability that Libra poses while the Trump administration has raised concerns of national security. Yesterday, ECB board member Benoit Coeure said, “They give rise to a number of serious risks related to public policy priorities. The bar for regulatory approval will be high,” according to Reuters. French Finance Minister Bruno Le Maire recently stated, “I’m deeply convinced that we should refuse the development of Libra within the EU.”
David Marcus, Libra's co-creator, took to Twitter to allay worries. "Recently there's been a lot of talk about how Libra could threaten the sovereignty of nations when it comes to money. I wanted to take the opportunity to debunk that notion," he wrote. "As such there's no new money creation, which will strictly remain the province of sovereign nations."