Libra's risk hurts crypto payments more than it helps
It’s clear that cryptocurrency has a momentum that cannot be ignored, but with regard to Libra, other factors are involved that make this specific cryptocurrency something that raises significant red flags.
Facebook’s Libra cryptocurrency is positioned as a low-cost global payments and financial services ecosystem that will give people access to the “internet of money.”
Twenty-eight of the world’s foremost stakeholders in payments and commerce are involved as founding members, with their experience and expertise shaping Libra’s charter and governance structure.
One of Libra’s goals is to make P2P payments easier for Facebook users. Millions of people worldwide already use Facebook, and it would be simple for them to move money to and from each other to cover anything from splitting bills in restaurants to exchanging money for birthday gifts. The other obvious advantage for consumers is that currency wouldn’t be an issue because you’re simply paying in Libra coin, which is universal.
But wait. If even a third of those Facebook users were to regularly make payments using Libra, that would account for more people than the population of Europe, all using a new currency that is not controlled by any one democratically elected government. Therefore, there is no accountability. That number of users would move into the realms currently supported by Amazon Pay or PayPal, particularly if transactions moved beyond P2P and started to facilitate consumer-to-business payments, too.
And this is where Libra should cause grave concern for the payments industry—and potentially nations as a whole. Why?
If online payments are made easier by Libra, what about the omnichannel shopping that so many consumers value today? They want the same payment methods, with the same secure but easy authentication, to work regardless of whether they are purchasing online or in physical stores. This would require considerable infrastructure changes for brick-and-mortar retailers to accommodate Libra payments.
At the point of payment Libra would work regardless of the country and its currency, but the “Calibra wallet” would still need credit and adding this would require currency conversion from the original source. When thinking about where that source will come from, in many cases, it’s the user’s salary. Are employers to be expected to pay staff in Libra coins?
Even if all citizens were to agree that Libra cryptocurrency was the way forward, with no other currency required, and that debit and credit cards were to be linked to their Libra accounts, there’s still the question of how this would be governed. The reality is that if Libra progresses, we’re potentially talking about replacing our currency and compromising our ability to apply stringent policies to our own economies.
If we consider that Libra gains traction and becomes a popular mechanism for P2P payments, millions of users will be attractive for retailers and an incentive to facilitate payments made using Libra.
There would then be demand for Libra coin to be stable, and this would require backing with real currency, fiat currency. Just a few percent of real money, whether that’s dollars, euros, pounds or yen, would be provided in credit to support the processing of Libra cryptocurrency which could run to billions, even trillions. For economies that are still recovering from the necessity to support and bail out their own national banks during the financial crisis, Libra might become a very unwelcome (not to mention privately owned) creditor.
Looking at the growth of Facebook—zero to 2.4 billion users in 15 years—it’s easy to understand the potential audience for Libra and the organization’s ability to deliver technology that’s hard to resist. They argue that it’s democratic, just the user and the tech, but herein lies the biggest issue. It’s not democratic just because people are using it. To be democratic, and importantly to be safe, secure and ensure our consumer rights are supported, we need rules and regulators with the power to implement those rules.
I question whether Libra could be implemented in such a way that those rules could be upheld. I also doubt that any single national regulator would have the power to control an organization whose financial clout was so powerful, that by taking action against it, they risk the economy of their own nation.