No fintech initiative has ever had such an extraordinary impact as that of Facebook’s Libra.
The mere announcement of a plan to launch a reserve-backed, blockchain-based stablecoin representing a new world currency immediately drew hostile reactions from governments concerned at loss of sovereignty, from central banks worried about financial system stability and alarmed at the potential reduced impact of monetary policy, and from financial regulators worried about money laundering.
More positively, the project has motivated central banks to intensify their own efforts towards setting up digital versions of their own national currencies.
In October, Facebook felt the impact of this backlash when most of the established payment companies – Visa, Mastercard, Stripe, Mercado Pago and eBay – that had been due to join the Libra association withdrew their support, reasoning it was not, after all, in their best interests to antagonize central banks and regulators.
The first assumption after the leading payments firms withdrew from the Libra association was that the project is now doomed thanks to its close association with Facebook’s toxic brand and widespread distrust of the company, which had done such a poor job of presenting itself as merely one partner among many in the Libra association.
Yet the prospect of what a highly profitable company with 2.4 billion active users might achieve in payments continues to tantalize.
As investors geared up for Facebook’s third-quarter earnings on Wednesday, Adam Vettese, analyst at multi-asset investment platform eToro, points out: “Looking longer-term, what should really excite investors is its foray into cryptocurrencies, through Libra.
“At the moment, it is far from clear exactly what Facebook will offer, but if it gets it right then we could see further growth in its share price.”
Could Libra yet launch and if so in what form?
Ronit Ghose, banks analyst at Citi, moderated a discussion on this with Simon Taylor, previously head of blockchain research and development at Barclays and now head of ventures at digital banking firm 11:FS, and Ajit Tripathi, emerging banking technology consultant and founder of Asango.
Both think that, despite the obvious setback of so many large payment companies turning away from the project, Libra will still go ahead in some form.
Taylor says: “I think it will launch, but I do not know if it will launch in 2020.”
Tripathi says: “Libra will have at least a technical launch at some point. If you look at the engineering behind it, Libra is very robust.
“However, I think it would not launch in the form that Libra originally intended, which was for it to be this global reserve currency and stablecoin that can be used for payments, both retail and wholesale by both individuals and institutions.”
One possible way forward might be for Facebook to launch some kind of e-money service on WhatsApp, which is hugely popular in many countries around the world. This might be a way for it to compete with Tencent, which has made such strides with WeChat.
However, it would also require a long and higgledy-piggledy process of obtaining different e-money licences from national regulators in many countries.
That’s a long way from the original and extraordinarily ambitious vision.
Almost everybody universally hates this thing, except for companies with lots of users- Simon Taylor, 11:FS
Taylor at 11:FS still has hopes for some variant of this. He points to the big-name companies still in the Libra association, such as Vodafone, Spotify and Uber.
“Almost everybody universally hates this thing, except for companies with lots of users, who find payments too slow/expensive, find refunds almost impossible to do, and find that the payments network just doesn’t suit their needs,” he says. “These are the ones who have stayed in.”
One smaller payment firm, PayU, also remains in the association for now. PayU is focused on merchants and consumers in 17 emerging markets across Latin America, central and eastern Europe, Asia and a few countries in Africa.
One of the big questions for the project is whether Libra can, in Taylor’s words, “speak with its own voice” or whether it will always be seen as part of Facebook.
Taylor says: “I think they [Facebook] are being quite pragmatic – Libra now is not what it started out being, and Libra in two years’ time may look very different to what it does today. However, will it have coalesced into running on existing rails? If it does, it’s not Libra anymore.”
The Bank for International Settlements (BIS) released a report investigating the impact of stablecoins in October.
This emphasizes once again the long list of risks for public policy, oversight and regulation that stablecoins present, including legal certainty, sound governance, anti-money laundering and countering the financing of terrorism (AML/CFT) compliance, operational resilience – including for cyber security – consumer/investor and data protection, and tax compliance.
The BIS reminds us that the G7 believes that no global stablecoin project should begin operation until these legal, regulatory and oversight challenges and risks are addressed, through appropriate designs and by adhering to regulation that is clear and proportionate to the risks.
Asango’s Tripathi says this report throws a spanner in the works, adding: “I do not think Libra in its current shape is an option, especially after the new BIS report. It will need to be scaled-down.
“I do not see them launching in western Europe.”
David Marcus, head of Calibra, was all over the recent IMF meetings and Facebook CEO Mark Zuckerberg has once again appeared before Congress.
One thing that is safe to predict: Facebook will now engage in a big lobbying effort.
Will it try to divide and conquer? It may look to launch in jurisdictions with economic volatility and even political instability where it might prove the concept before then turning its attention once again to launching a potential rival to the US dollar and the euro.