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Cryptocurrency: Facebooks Libra

CRYPTO / The time when bank payments across national borders took five days is not yet over. But it does not cost five percent of the transaction anymore. But what about those without a bank account? Libra is driving development


Talk about "techlash". The reactions last year to the announcement of Facebook's planned "stablecoin", Pound, were violent. I attended self. This reflected negative perceptions of the parent company – a fear that Facebook would exploit consumer confidence in Libra to collect data about our use of it – and sell or exploit the data in its own interest to drive increased traffic to its platform.

To allay such concerns, Facebook created a separate subsidiary, Calibra, to develop the currency. They established the independent Libra Association to provide operational oversight. But as they quickly learned, calming down worries is not the same as getting rid of them.

White Paper and central banks

It did not help that the idea itself was half-finished. It was unclear whether the Calibra group understood the difficulty of keeping a stable coin stable. Calibra White Paper (white paper) did not specify precisely which liquid and safe assets Libra Association would have in reserve for the purchase and sale of Libra if the price were to fluctuate. They did not admit that what was supposed to be a safe and liquid asset could quickly become illiquid and insecure.

The White Paper also did not acknowledge the risk of financial stability or the need for a lender in Libra's extreme emergency. If Libra, simply and easily, were to remain a payment tool, such concerns could be dismissed. But as soon as it became an important global payment currency, a system of Libra-based securities and derivatives was likely to grow around it. Sudden changes in price could thus be destabilizing for the economic system – and require market intervention from the owners. Given that Calibra apparently had not taken any of this into account, it is not surprising that the auditors were early in expressing their concern.

China's People's Bank is preparing to launch its own digital currencies.

Also, a global could stablecoin if the deen was successful, pose a danger to monetary policy. In a completely dollarized country such as El Salvador or Ecuador, for example, the US Federal Reserve today controls their local economic conditions. Widespread use of Libra could also put local economic conditions under the control of a handful of central banks, if Libra were pegged to a single currency. Maybe gratifying for countries like El Salvador and Ecuador, but not for those who value the ability of their national central banks to adapt economic conditions to local needs.

Santander, JPMorgan and China

On the positive side, the announcement of Libra highlighted two problems: the price of cross-border payments and low-financially included developing countries:

There are already dramatic changes in the payment field. Multinational banks such as Santander uses digital platforms initiated by the startup Ripple to transfer payments between their branches in different countries – during a fraction of the traditional time and at lesser cost. JP Morgan, the leading bank in the payment field, is preparing to launch JPM Coin, which will use a legal (private) book chain to transfer money between different financial institutions in different countries. And The Society for Worldwide Interbank Financial Telecommunication has responded to the threat of being eliminated as an intermediary by developing its own digital messaging service, SWIFT gpi.

Photo: pixabay

Furthermore, central banks between Singapore and Europe have established retail payment systems with instant payment and simultaneous bookkeeping of the transaction – 24 hours a day, seven days a week. They are now exploring how they can link these two together also internationally. And central banks like the People's Bank of China are preparing to launch their own digital currencies and seek to market their use in banks, firms and from investors in neighboring countries.

The future of Libra

In other words, the time when cross-border payment took five days and cost five percent of the transaction is over. The prospects for Libra gave central banks, commercial banks and SWIFT a new motive for developing more efficient mechanisms for making quick payments. Now Libra, as a new solution to the problem of cross-border payments, has thus become redundant.

But Libra is on firmer ground when it comes to financial inclusion. The announcement of an upcoming Libra highlighted schemes such as M-Pesa. This is a service where people in East Africa pay via their phones, even if they lack a bank account. But Libra also highlights the relatively high cost of mobile transmissions, and reflects the fact that such systems are operated by telecom giants.

One response is to abolish the regulation of the telecom sector and stimulate competition. Another would be for the central bank to enter into digital payment for retail. The National Bank of Cambodia is an example of a central bank that seems to be moving rapidly in this direction.

The point is that if not authorities, supervision and central Bankis making its own progress to include everyone, Libra will be preferred.

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