Facebook's Libra is currently making the economic headlines across the globe. It was therefore a hot topic at the Chantilly (France) G7 meeting of finance ministers and central bankers. While that meeting was ongoing, the U.S. House of Representatives and the U.S. Senate were carefully listening to David Marcus, the manager for Facebook’s digital currency project.
There are several reasons why the Blockchain-based Libra cryptocurrency project is currently facing a tide of criticism from all over the world.
Politicians are more than concerned; Facebook has already experienced data protection difficulties and yet it is now looking to handle money for over two billion customers, more than twice the population of any country in the world, barring China and India.
The main worry is that the checks and controls that have been carefully crafted and put in place over the course of several decades could now be side-stepped with Libra. This has led the French finance minister, Bruno Le Maire, to declare that any payment system set up by Facebook must be fully regulated and comply with the exact same standards to protect against money laundering that currently apply to any currency. This is also the concern about Facebook’s Libra expressed by legislators, bankers and policy makers in the U.S. and the U.K., and more recently by the International Monetary Fund, who all stressed that the Libra could be used for money laundering, could trigger economic instability and could weaken the importance of national currencies.
Even cryptocurrency advocates are doubting Facebook's ability to correctly manage the Libra. Indeed, Facebook has absolutely no experience as a financial institution and has certainly not yet shown proof of having learned from its data security failures. Before it can move forward with the Libra, Facebook needs to learn from its own experiences, and it cannot turn a blind eye to the obstacles and potentially catastrophic threats facing the Libra (possible privacy issues, attacks on Facebook servers...). Social media is one thing, but when it comes to money, as with a bank or payment system, any problems worsen exponentially. The minute a financial website goes live, it is bombarded with external attacks attempting to hack into the site. Will Facebook/Libra ever be ready enough for this level of attack?
Facebook does, however, have one argument in favour of its project, with which to counter the massive criticism and many preconceived ideas about the Libra. Its ammo comes from a speech by David Marcus, who talked about the inevitability of a global service on the same lines as the Libra:
« I think that if the United States doesn’t lead innovation in the field of digital currencies and payment systems, then others will. If we do not step up, we may see this market controlled by people with radically different ideas and ideology to our own. »
Marcus thus evokes the possibility of an « innovation war in the payment sector », which could fan the fire of international tension, alluding to countries such as Russia and China who have always fought to end the dominance of the dollar. Blockchain technology could provide them with a way to do just that.
For Libra advocates, this project would also be a way to help the 1.7 billion people who do not have access to financial institutions. This is, however, an argument which may well become Libra‘s Achille’s Heel. Indeed, the reason many consumers are unable to access financial services is their lack of formal identification, a problematic situation the Libra will struggle to overcome.
Facebook's arguments in favour of the Libra, that is, its promises of compliance with international regulations and assurances of the non-destabilization of markets, have so far failed to convince the major political and economic entities of the world to look favourably on the Libra, originally planned for launch in 2020.
