Libra: Could Facebook’s new currency be stopped in its tracks?

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Facebook’s Mark Zuckerberg wants to launch a global currency and change the world of finance for billions of people. But many – including powerful politicians, bank chiefs and regulators – don’t like the idea one bit. Why?

But Facebook could disrupt the whole system overnight, if people in those countries switch to Libra instead. It could do what M-Pesa, a digital currency popular in some African countries, has long sought to do – but on a much bigger scale.

Jerry BritoImage copyrightANTONIE HODGE
Image captionJerry Brito says that Libra’s future is hardly secure

That might be useful in the short term for those so reliant on remittances. But widespread use of Libra could also affect the economy of an entire developing nation, some believe – for better or for worse.

To supervise Libra properly, regulators everywhere must ask themselves what sort of financial instrument it is. No-one has a good answer yet. Prof Buckley thinks Facebook’s own white paper about Libra is deliberately vague.

Tight regulation

Regulators and politicians have essentially been thrown a gauntlet by the tech giant: you tell us what sort of scrutiny our brand new currency might receive, and we’ll respond accordingly.

But not all roads lead to success, says Jerry Brito, executive director of cryptocurrency research agency Coin Center.

NYSEImage copyrightGETTY IMAGES
Image captionIf regulators decide Libra is more like a share or bond, it will be very tightly regulated

“If, at the end of the day, it is [classed as] a security, then it may not work as a currency and we might see Facebook abandon the project,” he explains.

That’s because securities, tradeable financial assets like stocks and bonds, are very tightly regulated.

Other cryptocurrencies have largely avoided falling into this category.

Lots of licences

But Mr Brito thinks Facebook aims to persuade regulators to class Libra as a payment instrument or, possibly, a new kind of security that faces slightly less draconian regulation.

Once national regulators decide how they want to treat Libra, the main tool they can use to ratify it is licensing, explains Prof Buckley.

Facebook would need to apply for a licence in any country where it wants to offer Libra as a payment tool. And to get those licences the company would have to show that it can detect and stop money laundering, and the financing of terrorism, for example.

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Facebook or its subsidiaries might also need licences to operate as financial trading institutions, again depending on how regulators view Libra.

Attempting to ignore these licences and standards would not end well.

“It would have to be willing to be totally maverick, basically be a criminal organisation,” says Prof Buckley. “I’m not even sure Facebook would be willing to take that on.”

Crisis plan

There remain, though, other concerns that existing regulatory regimes may not be able to address. As Prof Lana Swartz at the University of Virginia points out, no-one really knows what the Libra Association aims to do with its monetary policy.

“Theoretically, when a financial crisis hits, the goal of central bankers is to stabilise the monetary supply and move towards financial recovery in their country,” she explains.

Lana SwartzImage copyrightKEVIN DRISCOLL
Image captionProf Lana Swartz says no-one really knows how Facebook would try to stabilised its currency

“With Facebook, it’s unclear whose interests would be taken into account in trying to stabilise Libra.”

And to whom would the Libra Association be accountable, internationally? There, things get even murkier.

Libra could be stopped from ever launching, it is true.

But should it launch and become a hit, no-one really knows how it will be regulated globally. The politicians and bank chiefs are, therefore, trying to buy themselves time.

If this thing does get off the ground, they must be wondering what on earth they can do to keep it in check.

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