Earlier this year, Facebook revealed the details of its plan to launch a new cryptocurrency, called ‘Libra’. As with other cryptocurrencies, the Libra allows for almost zero transaction fees (Constine, 2019). However, it is distinct to other popular coins, as it will be backed by a reserve made up of sovereign currencies, with the United States Dollar (USD) accounting for approximately 50% (Escritt, 2019).
Through Facebook, the Libra would become instantly available to billions of people around the world. The idea of a non-sovereign currency with so much reach has reportedly placed central bankers in a defensive stance, and the currency has already been pre-emptively blocked in countries such as Germany and France (Orcutt, 2019).
Countries are becoming increasingly wary of the threats posed by digital currencies. The People’s Bank of China (PBOC) has been researching digital currency since 2014, and have been closely tracking the development of Facbook’s Libra since it was announced. Nations and banks are finding more and more incentives to explore the possibilities of what was once described as non-valuable unchartered territory. For instance, in August 2019, it was reported that the PBOC will soon be ready to launch their own digital currency (Orcutt, 2019).
European finance ministers claim that Facebook cannot be trusted to properly deal with the responsibilities related to security, investor protection, money laundering and terrorist financing, and monetary sovereignty (Orcutt, 2019). National governments and institutions are seeking ways to fight against Facebook’s Libra, and seem to have been successful at deterring the launch of the digital currency. In October, PayPal (who was committed to the development of Libra), announced that it would be withdrawing its participation due to the government’s scrutinization (Feiner, 2019). Later, other participants such as Ebay, Visa, Mastercard, and Swipe followed PayPal, declaring that they would also no longer participate in the project.
As such, the future success of Facebook’s Libra remains to be determined. In any case, the technology’s innovative approach and unquestionable potential impact sheds light on the future challenges that central banks will have to face to maintain monetary sovereignty.
References:
Escritt, T. (2019). U.S. dollar to be main currency underpinning Facebook’s Libra: Spiegel. [online] U.S. Available at: https://www.reuters.com/article/us-facebook-libra-basket/u-s-dollar-to-be-main-currency-underpinning-facebooks-libra-spiegel-idUSKBN1W522K?feedType=RSS&feedName=technologyNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtechnologyNews+%28Reuters+Technology+News%29 [Accessed 15 Oct. 2019].
Feiner, L. (2019). Facebook’s libra cryptocurrency coalition is falling apart as eBay, Visa, Mastercard and Stripe jump ship. [online] CNBC. Available at: https://www.cnbc.com/2019/10/11/ebay-drops-out-of-facebook-libra-cryptocurrency-one-week-after-paypal.html [Accessed 15 Oct. 2019].
Orcutt, M. (2019). France and Germany have said they will oppose Facebook’s digital currency. [online] MIT Technology Review. Available at: https://www.technologyreview.com/f/614321/facebook-libra-france-and-germany-say-they-will-oppose-facebooks-digital-currency/ [Accessed 15 Oct. 2019].
Orcutt, M. (2019). Should central banks issue digital currency? Suddenly, it’s an urgent question.. [online] MIT Technology Review. Available at: https://www.technologyreview.com/s/614472/should-central-banks-issue-digital-currency-suddenly-its-an-urgent-question/ [Accessed 15 Oct. 2019].
