Facebook wants its Libra to one day rival the greenback
Sustainable, profitable housing model COMPANY’S NEW CRYPTOCURRENCY WILL LAUNCH AS SOON AS NEXT YEAR
Facebook Inc unveiled plans for a new, global financial system with a broad group of partners from Visa Inc to Uber Technologies Inc on board to create a cryptocurrency it expects will one day trade much like the US dollar and inject a new source of revenue.
Called Libra, the new currency will launch as soon as next year and be what’s known as a stablecoin — a digital currency that’s supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions across Facebook in a way that more volatile cryptocurrencies, like Bitcoin, haven’t been.
The project is the culmination of a year-long effort as Facebook seeks to spur growth on its various platforms that already count more than 2 billion users. But it will also likely face scepticism from regulators who already think Facebook has too much power and plays loose with digital privacy, and from those that are dubious of cryptocurrencies, which are known more for speculative investments and blackmarket commerce than for legitimate financial transactions.
Financial player
If successful, Libra could make Facebook a much bigger player in financial services. Cryptocurrency firms have been trying to build cross-border, digital currencies on the blockchain to disrupt traditional banking and payments for a decade, but nothing has caught on at the scale of traditional money yet.
Facebook, which announced the project with 27 partners, is already under wide-ranging ■ regulatory scrutiny over how it handles users’ private data. Growth of its main platform has plateaued in some major markets and crypto payments would be a way to turn messaging — across WhatsApp, Facebook and Instagram — into a business that complements its advertising operation, which generates almost all of its revenue.
Facebook shares gained early yesterday as analysts saw the move as a potentially major new profit stream.
“We view Facebook’s introduction of the Libra currency as a potential watershed moment for the company and global adoption of crypto,” wrote Mark Mahaney, an analyst at RBC Capital Markets who has an outperform rating and $250 (Dh918) price target on Facebook shares. “In terms of scale and importance, we believe this new financial infrastructure could be viewed similar to Apple’s introduction of iOS to developers over a decade ago.”
Still, the announcement was met immediately with political opposition in Europe, with calls for tighter regulation of the company. French Finance Minister Bruno Le Maire said Libra SCAN ME
Trust needed
Scan the QR code to read about Facebook’s plan for Libra
shouldn’t be seen as a replacement for traditional currencies and called on the Group of Seven central bank governors to prepare a report on the project for their July meeting.
“It is out of question” that Libra “becomes a sovereign currency,” LeMaire said in an interview on Europe 1 radio. “It can’t and it must not happen.”
To come anywhere close to matching the US dollar for utility and acceptance, Libra will need to be widely trusted. So Facebook and its partners are mimicking how other currencies have been introduced in the past.
“To help instil trust in a new currency and gain widespread adoption during its infancy, it was guaranteed that a country’s notes could be traded in for real assets, such as gold,” the companies wrote in a white paper. “Instead of backing Libra with gold, though, it will be backed by a collection of lowvolatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.”
The total number of Libra can change, and new digital coins can be issued whenever someone wants to exchange their Libra for an existing fiat currency, so the price shouldn’t fluctuate any more than other stable currencies, according to David Marcus, head of the Facebook blockchain team that’s spearheading the project.