On 23rd October 2019, Facebook founder and CEO faced a barricade of questions while testifying before the House Financial Services committee against what seemed to like a prepared community of representatives.
One remarkable issue that Mr. Zuckerberg conceded was that the company’s planned digital currency, Libra, was indeed a ‘risky project’. This is not the first roadblock that Libra is facing considering there have been mixed reactions, at home and abroad.
Libra is an association that was formed by 28 multinationals and not-for-profit organizations, but Facebook takes the lead through its subsidiary Calibra. These organizations pledged USD 10 million towards the development and launch of the product.
Work on blockchain and cryptocurrency at Facebook started in 2017 but Libra was formally announced in June 2019 and projected to be released 2020. Therefore, when Mr. Zuckerberg visited Kenya three years ago, with an interest to learn about MPESA, a lot must have been happening in the tech giant’s projects kitchen.
The US Congress doesn’t seem to buy the Libra pitch for existence if the congress grilling this week is anything to go by. Other countries have shown outright resistance as well as partners developing cold feet.
Recently, one of the key partners, PayPal, announced the decision to pull out of the Libra Association without giving a reason why they were leaving the project.
They only alluded to a decision to forgo further participation in the association at this given time, pledging their focus on advancing the existing mission and business priorities, particularly democratizing access to financial services for underserved populations. PayPal’s statement did not mention any constraints or regulatory impediments or even whether it will honor its monetary pledge.
Early September, the French finance ministry released a statement confirming that France and Germany had agreed to block Facebook’s Libra existence.
In fact, the European Central Bank(ECB) and some countries are said to have stepped up efforts to react to Libra, with ECB keen revive a competing solution for instant payments. ECB also made it clear that in case the cryptocurrency was to exist, it will be regulated under EU laws.
Indeed, some key issues come into sharp focus, especially in the light of emerging trends around monetary policies and regulations in the 21st century.
First, there is a huge reason to worry about a nation’s sovereignty when currency is discussed. Think about the management of fiscal policy, usually a preserve of a nation. That monetary power cannot be delegated to another entity unless within a currency union governed by intergovernmental agreements.
To think that a private entity can claim monetary power, which is inherent to the sovereignty of nations, is not only an impossibility but also a monumental task against strong political machinery.
Secondly, the world is grappling with money laundering menace. Proceeds from crime and drugs are always a worry for most financial regulators across the world. Central banks keep tightening the noose through enhancing due diligence and more client identification.
Libra creates an ecosystem where it is easy to compromise sources and payment path for funds. In fact, during the Congress hearing, Mr. Zuckerberg was accused of trying to help drug dealers. Obviously, this implies also that fraud can be easily perpetuated through system linkages, or at times fraudsters moving money from the conventional financial systems into the Libra network. That is a reason for most regulators to stand in the way of developing a digital currency straddling continents.
One of the messages central to Facebook’s pitch is countering Chinese influence in the formal financial systems. A leading crusader of Libra initiative warned against derailing the company’s plans for creating a cryptocurrency, opining that such a measure would hand China undue advantage. But other analysts are worried about Facebook’s ability to manage large data, especially financial information.