Facebook to create global currency for its subscribers

A 3-D printed Facebook logo is seen on representations of virtual currencies in this illustration picture, June 18, 2019. [Reuters]

Facebook has unveiled plans for a new global digital currency called Libra, nearly three years after its founder Mark Zuckerberg visited Kenya to understand how M-Pesa works. 

The social network giant with more than 2.4 billion users had pledged to deliver a stable virtual currency that lives on smartphones and according to Mr Zuckerberg could bring over a billion "unbanked" people into the financial system. 

Users on its other platforms, including those on WhatsApp and Messenger, would beginning next year, have a digital wallet from where they could send money to any place in the world.

Its selling point is safety, speed and a minimal transaction cost compared to other available payment options.

Zuckerberg unveiled plans about Libra less than two years after he visited Kenya in September 2016 to get a feel of M-Pesa – a runaway success backed by Safaricom.

“I’m here to meet with entrepreneurs and developers, and to learn about mobile money, where Kenya is the world leader,” he said, giving the first hint about Facebook’s plan for digital currency.

Zuckerberg acknowledged during his visit that it might “be hard to appreciate just how advanced the Kenyan system is over others” adding that there were lots of lessons to be learnt from Kenya.

The Libra coin plan, backed by financial and nonprofit partners, represents an ambitious new initiative for the world's biggest social network with the potential to bring crypto-money out of the shadows and into the mainstream. 

Facebook and some two dozen partners released a prototype of Libra as an open source code for developers interested in weaving it into apps, services or businesses ahead of a roll-out as global digital money next year.

The nonprofit Libra Association based in Geneva will oversee the block chain-based coin, maintaining a real-world asset reserve to keep its value stable.

One of the association's officials, Dante Disparte, said it could offer online commerce and financial services at minimal cost to more than a billion "unbanked" people.

"We believe if you give people access to money and opportunity at the lowest cost, the way the internet itself did with information, you can create a lot more stability than we have had up until now," Mr Disparte told AFP.

"Many people who use Facebook are in countries where there are barriers to banking or credit."

Facebook's plan, however, has raised questions about how such a new currency will be regulated, with one lawmaker calling for a pause on Libra.

"Given the company's troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues," said Maxine Waters, chair of the financial services committee in the US House of Representatives.

Meanwhile, French Finance Minister Bruno Le Maire said such digital money could never replace sovereign currencies.

"The aspect of sovereignty must stay in the hands of states and not private companies which respond to private interests," Le Maire told Europe 1 radio.

Bank of England Governor Mark Carney said Facebook's new currency would have to withstand scrutiny of its operational resilience and not allow itself to be used for money laundering or terror financing.

ING economists Teunis Brosens and Carlo Cocuzzo said in a research note it was not clear what Libra was or how it might be regulated while US Senator Sherrod Brown, a Democrat and banking committee member, voiced concerns over Facebook's checkered record on protecting users' privacy.

Libra Association debuted with 28 members including MasterCard, Visa, Stripe, Kiva, PayPal, Lyft, Uber and Women's World Banking.

Calibra is being built into Facebook's Messenger and WhatsApp, with a goal of letting users send Libra as easily as they might fire off a text message.

Libra learned from the many other cryptocurrencies that have preceded it such as bitcoin and is designed to avoid the roller-coaster valuations that have attracted speculation and caused ruin.

Real-world currency will go into a reserve backing the digital money, the value of which will mirror stable currencies such as the US dollar and the euro, according to its creators.

"It is backed by a reserve of assets that ensures utility and low volatility," Barel said.

The Libra Association will be the only entity able to "mint or burn" the digital currency, maintaining supply in tune with demand and assets in reserve, according to Barel.

"It is not about trusting Facebook, it is effectively trust in the association's founding organisations that this is independent and democratic," Disparte said.

The launch comes with Facebook seeking to move past a series of lapses on privacy and data protection that have tarnished its image and sparked scrutiny from regulators around the world.

Zuckerberg has promised a new direction for Facebook built around smaller groups, private messaging and payments.

Facebook said it would not make any money through Libra, but rather was seeking to "drive adoption and scale" before exploring ways to monetize the new system.

Lou Kerner, an analyst, said Libra had good potential.