The rumor had been running for months. Facebook has finally thrown into the crux of the cryptocurrency: the number one social networks confirmed Tuesday, June 18, the launch in the first quarter of 2020 libra, a dematerialized currency that looks like bitcoin.
Facebook hopes that users in its network will use it to transfer funds and pay online (on WhatsApp or Messenger) purchases made from partner sites, such as Uber or Spotify.
The Internet giant wants to attract Internet users through the promise of transactions that will cost them less. Libra, like bitcoin, offers the possibility of transferring funds directly to a third party without going through the traditional financial intermediaries (such as banks), which charge fees for each transaction.
But this new cryptocurrency is not without risks. The French Minister of the Economy, Bruno Lemaire, has also warned against the temptation to consider the libra as a "sovereign currency", whose creation must remain an exclusive prerogative of the States. Libra could even destabilize some financially fragile countries, as explained to France 24 Loïc Sauce, economist at the Higher Institute of Science, Techniques and Business Economics (Istec), specialist in cryptocurrencies.
Why is Facebook embarking on the financial sector with a cryptocurrency?
Loïc Sauce: Officially, if we read their white paper, Facebook aims to help those left out of the banking system by offering them access to basic financial services that do not require a bank account. . The libra will allow them to transfer money or pay online directly from a virtual wallet set up by Facebook.
But for Facebook it's also a way of consolidating its network. There are, of course, many registered users but the number of really active accounts is smaller than before. By adding the possibility of buying and transferring money easily, the Californian group can hope to awaken the interest of some of them. And the more people are active on Facebook, the more likely they are to be exposed to advertising, which remains the main source of revenue for the social network.
Moreover, this new currency must also allow Facebook to centralize more information about users for advertising purposes. The US giant has established a subsidiary in Switzerland that will manage Calibra, the virtual wallet from which users will pay with the new currency. It is thanks to this new tool [which besides is not reserved to the users of Facebook, Ed] that the social network will collect the data on the purchases made in libra.
What will be the impact of libra on other cryptocurrency like bitcoin?
I do not think that libra should be seen as a direct competitor to bitcoin. It can serve as a gateway to discover other cryptocurrencies. Currently, they suffer from an obvious image deficit because the general public, when they know them, consider that they are essentially used to buy drugs. The fact that a major player, like Facebook, is investing in it can change this perception and, perhaps, also lead some people to take a closer look at it.
It is also potentially a technological accelerator for the entire sector. Facebook has partnered with major financial groups, having the means to innovate. Progress that can benefit all actors in the sector.
Finally, Facebook announced that it would discuss with the financial regulators of several countries to work on a legal framework for the use of its cryptocurrency. An approach that could bring some regulatory clarity to a sector that is sorely lacking. Currently, there is a big blur on this subject. This is the main obstacle to the adoption of cryptocurrency by companies according to a 2018 study of the consulting firm PwC (PricewaterhouseCoopers) conducted with 600 companies in 15 countries.
On the other hand, libra is hardly compatible with the philosophy behind the development of cryptocurrencies. Bitcoin was invented to create a new decentralized and anonymous payment method, thus respecting the privacy of its users. We already suspect that the personal data will be exploited by Facebook.
The system put in place to manage this currency will not be very open, at least initially. The companies that will have the power to manage the libra network (create the currency, validate transactions, Ed) are those who have paid a $ 10 million entry fee and have been co-opted. In his white paper, Facebook announces, however, that he wants to open, eventually, the network to all. We can therefore give him the benefit of the doubt. It remains to be seen how long he will fulfill this promise. If libra becomes the reference, one can wonder what will happen to the ideology conveyed by other cryptocurrencies.
Can this new currency have an impact on some developing countries?
It can potentially create massive substitution effects in countries with fragile or poorly managed financial systems. In states like Venezuela or Zimbabwe, reliance on libra may be a way out for people who have lost confidence in the local currency [especially as Facebook officially hopes that its paperless currency can afford to pay bills or the races, note]. In this case, libra can become an element of financial stability by pushing financial institutions to discipline themselves or it can end up making the local currency useless.
But the introduction of libra does not risk then to undermine the sovereignty of these countries since one of the pillars is control over the currency used?
Yes, and that's good for me. It should not be forgotten that the first victims in countries with a dilapidated monetary system are the poorest. The rich always find a way to protect their money in other countries. The libra can thus make it possible to overcome a state failure, even if it is true that this poses the problem of a privatization of one of the prerogatives of a government.