Facebook, in its latest development, unveiled the launch of its own version of cryptocurrency, Libra, which it says would be a tool for financial inclusion and will disrupt the world’s cumbersome payments system. After a period of intense speculation, the massive social network, along with its partners is touting the Libra digital coin that would make sending money across the world as easy as texting. According to the white paper released on June 18 2019, the usage of Libra would do away with fees, delays and other barriers to the free flow of cash.
What exactly is the Libra?
Facebook calls its new crypto currency, the libra, which was the Roman unit of weigh measurement for scales or balance. Interestingly, Libra, the astrological symbol, holds the scale of justice, and phonetically it sounds like libre, which is French for free or freedom. Thus, the name is a combination of money, justice and freedom.
Besides the nomenclature, another factor that makes Libra interesting, is that its market value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies, including the dollar, euro, pound among others, unlike the bitcoin (that is known for its volatility). So then, the Libra Association maintains this basket of assets and can change the balance of its composition, if necessary to offset major price fluctuations, in any one foreign currency, so that the value of the libra stays consistent. Also, libras will be fully reserved; so every time a user trades traditional currency for Libra, the money will go into the reserve, and stay there until the customer withdraws from the system. All in all, the libra with all its features, assumes the identity of the money rather than an investment vehicle.
Another factor that differentiates libra from other cyptocurrencies such as Bitcoin, is that it can process 1000 transactions per second, which means it is actually scalable, unlike Bitcoins and others relying on similar blockchains(widely shared online ledgers that keep track of activity). Another accentuating feature is there will be no service fees, which could save customers plenty of time and money on moving funds across the borders.
Clearly the Libra has been well thought of to raise eyebrows around the world. Notwithstanding the exciting make, the commercial potential of using libra is also significant. Say, if each of Facebook’s 2.4 billion users converted a slice of their savings into Libras it could become a widely circulated currency. Also, if broadly adopted, it could alsovest unprecedented power in the hands of the issuer. In that sense, the usage of Libra could be truly disruptive.
Another fact that appears novel in Facebook’s approach to Libra is that Facebook wants to outsource the running of Libra to a consortium of worthies recruited from the world of technology, finance and NGOs. In this regard the Libra Association will assume control. Further, this association to be set up in Geneva will run the currency on a equal-vote basis. Its 100 members are to jointly manage accounts, govern Libra’s reserves and take key decisions. This explains the Libra association’s move to a “permissionless structure” (permission means only entities that fulfill certain requirements are admitted to the association).If such a move is established, this will imply an even distribution of control, encourage competition and lower the barrier to entry, which will essentially lead to the libra being decentralized.
What’s in it for India?
If Libra works, then it could be a money spinner for Facebook, albeit not directly. However, for all of Facebook’s talk about helping the unbanked in developing countries (read India), it seems intent on becoming a major competitor of the existing banking system. Having said that, governments often tend to resent private institutions that infringe on their prerogatives. This explains India’s staunch opposition to cyptocurrencies, even proposing a 10 year jail term for people who handle them.
Though much doubt surfaces about Libra being typified as a cryptocurrency, previous instances of the government holding firmly against WhatsApp Pay, refusing to approve the platform’s launch date, is a stark reminder of this, It could well be that inconsistencies that usually accompany such non-fiat currencies might not matter for the Indian users (especially where the libra could reduce service fees for Indians sending money to families), but governance issues could very well stall the adoption of this form of currency in the near future.
India Outbound
June 25, 2019
source https://indiaoutbound.org/could-libra-revolutionise-the-financial-system/
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