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Know Why Facebook’s Digital Coin is Set to Run into Rough Weather

By launching its own cryptocurrency, Facebook is essentially creating its own shopping ecosystem

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Facebook is reaching out to financial firms and payments service providers to join the Libra consortium to help them launch their cryptocurrency-based payments system. Pixabay

Sensing a multi-billion dollar opportunity to improve the cross-border payments system, Facebook is launching its own digital coin called ‘Libra’ next year which is set to run into rough weather with several governments, including India, not treating cryptocurrencies as legal tender.

The move to launch ‘Libra’ comes at a time when Facebook is under intense pressure from regulators, shareholders and users to address privacy shortcomings.

The social networking giant with over two billion users globally, is facing regulatory challenges as the Cambridge Analytica scandal has exposed its lapses of data privacy and security.

According to senior Forrester analyst Aurelie L’Hostis, now that Facebook is reaching out to financial firms and payments service providers to join the Libra consortium to help them launch their cryptocurrency-based payments system, we can expect regulators and governments to raise questions regarding Facebook’s financial data collection and management process.

Facebook, Digital, Coin
Facebook is launching its own digital coin called ‘Libra’ next year which is set to run into rough weather. Pixabay

“By launching its own cryptocurrency, Facebook is essentially creating its own shopping ecosystem where consumers and businesses will be able to buy and sell products on its platforms without having to use web payment systems like PayPal,” L’Hostis told IANS.

However, the move is set to see some intense scrutiny as there is huge trust deficit with Facebook.

Facebook has been making inroads into financial services, having applied for a EU “e-money” license five years ago in order to let users use Facebook to pay and exchange money with others on the platform.

According to Meng Liu, another analyst with Forrester, the Libra vision sets up a series of massively complex challenges.

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“A cryptocurrency being used by 2.7 billion people across the globe would be a threat to national sovereignty and disruption of their ability to coin money.

“China, Indonesia, and Pakistan have already banned Bitcoin and other cryptocurrencies due to similar threats. The US, France, and Russia have now all expressed concerns regarding the threat that Libra would represent,” said Liu.

Though cryptocurrency itself is characterized by anonymity, the digital platforms that consumers use to make payments will be based on WhatsApp, Instagram and Facebook.

“The Cambridge Analytica scandal exposed egregious missteps by Facebook — and users haven’t yet forgotten that breach of trust,” Liu added.

Facebook, Digital, Coin
The social networking giant with over two billion users globally, is facing regulatory challenges as the Cambridge Analytica scandal has exposed its lapses. Pixabay

‘Libra’s’ documentation indicates that it has strengthened its data privacy protection mechanisms, but this will unlikely be enough to assuage deep concerns when it comes to Facebook’s ability to govern such a system and currency.

“Meanwhile, too much privacy will increase regulatory concerns about money laundering and tax avoidance,” the expert cautioned.

Facebook says its aim is to enable accessible and affordable digital payments for billions of people with ‘Libra’.

“While Facebook has a lofty vision for Libra, it already faces many rough challenges pertaining to privacy and regulation. India currently posits an excellent growth opportunity for fin-tech initiatives, primed from its booming digital payments push by the government,” said Prabhu Ram, Head, Industry Intelligence Group (IIG), CyberMedia Research.

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It is no wonder then that in India Facebook, like its peers Google and Amazon, has been aiming to integrate payment capabilities into WhatsApp, allowing users to make and receive payments.

“However, with ‘Libra’, it will potentially run into rough weather with the Reserve Bank of India (RBI) which currently does not view cryptocurrency favourably,” Ram told IANS.

Just weeks ago, the media was awash with calls to break up Facebook and reduce its influence. Considering this background, the launch of the ‘Libra’ project seems brazen.

“But what is even more strange is Facebook’s decision to launch a cryptocurrency. Launching a traditional payment system to better compete with the likes of Alipay and WeChat Pay would have not attracted such ire from governments and would have probably had a better chance of success,” noted Liu. (IANS)

Next Story

US Lawmakers Call Facebook’s Digital Coin Libra as ‘Delusional’

Under Facebook subsidiary Calibra, the social networking giant has planned to introduce a digital wallet for Libra. The wallet will be available on Messenger, WhatsApp and as a standalone app and is expected to be launched in 2020

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Facebook, Libra, Bitcoin
Bitcoin, which has risen in value for eight consecutive days, received a boost after Facebook has said it would offer its own cryptocurrency, the Libra coin by end of June 2020. Pixabay

The US lawmakers attacked Facebook’s upcoming digital cryptocurrency Libra at a Senate hearing here, calling it “delusional” and “dangerous” and directing the social networking giant to clean up its house first before launching a new business model.

David Marcus, Head of Facebook subsidiary Calibra, was grilled at the Senate Banking Committee on Tuesday, reports Tech Crunch.

Democrat Senator Sherrod Brown who began the hearing blasted Facebook, saying it was “delusional” to think people would trust it with their hard-earned money.

“We’d be crazy to give them a chance to let them experiment with people’s bank accounts,” said Brown, adding that “like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over and called every arson a learning experience.

Republican Senator Martha McSally echoed his views: “Instead of cleaning up your house, you are launching a new business model.”

Marcus said Facebook “will only build its own Calibra cryptocurrency wallet into Messenger and WhatsApp”.

Marcus told lawmakers that Libra – controlled by a non-profit called the Libra Association — will comply with all US regulations and unless all concerns are answered, would not be launched.

Earlier on Monday, US Treasury Secretary Steven Mnuchin said he was “uncomfortable” with Libra. US Federal Reserve Chair Jerome Powell has also raised “serious concern” over Libra.

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FILE – Representations of virtual currency are displayed in front of the Libra logo in this illustration picture. VOA

Marcus, in a prepared testimony, said the Libra Association would be regulated by the Swiss government because that’s where it’s headquartered.

“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA),” Marcus wrote.

US President Donald Trump last week tweeted that he is not a fan of Bitcoin and other cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.

“Unregulated Crypto Assets can facilitate unlawful behaviour, including drug trade and other illegal activity,” Trump said.

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“Similarly, Facebook Libra’s avirtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.

“We have only one real currency in the USA, and it is stronger than evera It is called the United States Dollar!” he further tweeted.

Facebook has said it is not going to launch its digital coin Libra unless regulators are fully satisfied and all necessary approvals are in place.

Under Facebook subsidiary Calibra, the social networking giant has planned to introduce a digital wallet for Libra. The wallet will be available on Messenger, WhatsApp and as a standalone app and is expected to be launched in 2020. (IANS)