Facebook's long-awaited cryptocurrency, Libra, can launch as soon as January 2021 despite setbacks
Libra is seeking approval from Switzerland's Financial Markets Supervisory Authority to operate as a payments service
Libra could see the light of day and become a part of the Facebook payment ecosystem in 2021 after a longer than expected wait. However, according to a Financial Times report, Facebook's Libra will be a different version of the initial vision of a digital composite coin and is likely to be released only in a limited format.
Libra was first announced in June 2019. While this garnered interest from investors, most notably receiving backing from household names such as Mastercard and Visa, regulators were apprehensive about the scope of Facebook's goals and its means of achieving it. The US Senate Banking Committee, for instance, was avidly pursuing further details on Libra, perhaps driven by Facebook's track record in protecting user privacy. There seems to be a constant concern that Facebook holds too much control over user data, and expanding this reign to users' financial transactions poses too great a risk for users. Regulators were wary of cryptocurrency posing threats to monetary stability and being used for money laundering. Libra, in its latest iteration, is a scaled-down version of the original dream, which might prove to be more palatable for regulators.
The Libra Association, an independent non-profit organisation established by Facebook, including members such as Uber and Spotify, oversees Libra. The Libra Association initially planned to launch multiple coins, which would be digital versions of several currencies in addition to a digital composite of all its coins. However, the association will now tread more cautiously due to regulatory backlash and launch just as a single stablecoin, a cryptocurrency backed by traditional fiat currencies: Libra. The Libra Association still plans to roll out the other currencies and the composite coin in the future.
In this case, Libra will be backed by the US dollar. Theoretically, since its value is pegged, Libra, by design, is expected to be less volatile and more predictable than other cryptocurrencies. Libra will be tied to a reserve of assets consisting of government securities and cash or cash equivalents to reaffirm users that Libra can be converted into local currency when the need arises. One of Libra's primary goals is to provide people who are still unbanked access to a global currency. The idea here, much like most FinTech innovations, is to revolutionise banking. However, critics opine that if Libra is pegged to the US dollar, this could mean that people outside of the US incur additional costs, which undermines its goal of greater financial inclusion.
Libra is currently seeking approval from Switzerland's Financial Markets Supervisory Authority to obtain a payment system licence and operate as a payments service. The application was made in April 2020, and approval may come as early as January 2021. The plan seems to be to initially launch Libra in the US and some Latin American countries.
Many such cryptocurrency experiments are being considered. It would not be surprising should other companies decide to tread a similar path to take advantage of the shortcomings in cross-border payments in the financial system. This topic, which is only growing daily, is certainly worth revisiting when relevant fiscal and regulatory frameworks are established.