Facebook’s Libra is a digital currency which was announced on 18th June 2019. [It will be launched in 2020, provided it clears all the regulatory hurdles.]
This currency will let users transfer money across the world just through a tap on the smartphone.
It will operate on the blockchain technology like bitcoins.
The blockchain is nothing but a shared record of all transactions done through the system
[I highly recommend you to read this post: Bitcoin- What & How- All Your Questions Answered]
Unlike the Bitcoin blockchain, the Libra blockchain is not decentralised. It will be controlled by a Libra association.
This will enable Libra transactions to be faster and cheaper.
Libra association is an independent body consisting of a diverse group of organisations like Uber, Vodafone, Spotify etc. This association will also have a new Facebook subsidiary Calibra as its member. Facebook hopes to have 100 members in this organisation by its launch in 2020
[Some initial members of the association like PayPal, Mastercard, E-bay etc had left before the first Libra meeting in October 2019]
The Libra is expected to be less volatile than bitcoins. This is because its value will be pegged to a basket of major currencies– 50 % United States Dollars, 18% Euro, 14 % Japanese Yen, 11 % Pound Sterling and 7 % Singapore Dollar.
Libra will be created only when users buy it with real money. This money would be put in a reserve fund which will be used to back the value of Libra. This reserve fund will mostly hold Government securities. Thus, Libra will be backed by real assets.
Facebook will create a digital wallet called Calibra to store Libra, through its subsidiary of the same name. It will be made available in Messenger, WhatsApp and a standalone Calibra app. Thus, you will be able to send money just through a click on Facebook messenger.
If you have to use Libra, you can download the Calibra app and buy Libra through linking your bank account. The wallet will have information on the number of Libra as well as its value in local currency.
It has to be noted that the Calibra app is not essential to transact in libra. It may be stored in apps developed by other companies as well.
Facebook asserts that there are 1.7 billion people around the world without access to basic financial services. Libra has the potential to revolutionise banking for the poor.
Despite these lofty objectives of taking financial services to the masses, Facebook’s Libra has hit major regulatory roadblocks. The Government and regulators have expressed concerns that the currency could be used for money laundering and sponsoring cross-border terrorism.
There are privacy issues also. Facebook has reassured that it will manage Libra through a subsidiary called Calibra and will maintain separation of social data and financial data. But, Facebook does not have a good record in safeguarding data of its users.
Moreover, Libra was announced a year after it was rocked by the Cambridge-Analytica scandal. Facebook had sold its data to Cambridge-Analytica, which used it to influence elections around the world. Apart from that, advertisers can use the data to serve targetted ads to users on social media.
Also, if transactions in the new digital currency take off, it will lead to a privatisation of the international payment system, controlled by a few large organisations. It is a threat to national sovereignty. It will also affect the ability of the Central banks to use the monetary policy to control inflation and promote growth and investment.
To conclude, Facebook’s Libra is a good idea which can turn dangerous in the hands of private organisations if not regulated properly.
You may also read-
What is the trade war between US and China?- Explained
References:
A good read for anyone to have a basic understanding of Libra and how it will function.
Could you please cover something on the much spoken virtual currency ‘Initiative Q’?
Thanks, Akshay. I will try to write a post on ‘Initiative Q’. Keep reading 🙂