Thought Conference. Economist Jérôme Mathis analyzes the prospects and dangers of the internet giant’s future virtual currency “Libra.”
stands. The unbanked in some parts of the world, including Africa, are eagerly waiting for a cryptocurrency that can be easily used with slow mobile phones and that is not as volatile as bitcoin. Facebook’s current cryptocurrency “Libra” is likely to meet this need.
Cryptocurrencies continue to gain ground despite complaints from central bankers and some governments. Just a few years ago, they caught the attention of some computer hobbyists looking for protocols that would enable currency transactions without going through a bank. Today, in some places, they offer real alternatives to national currencies and are shaking up monetary authorities. So much so that their capitalization is already close to a quarter of the total amount of euro-denominated coins and banknotes.
Also read “In Africa, Cryptocurrencies Will Drive Monetary Integration Process”
The most popular of these, Bitcoin, has been a huge success, but is currently struggling. Even though it may have a bright future as a speculative vehicle, it’s just a poor means of payment. Its volatility is its Achilles heel. Its price is like a roller coaster because it is not regulated by any central bank and is not backed by any asset (currency, commodity or debt securities). It remains a backup for victims of double or triple digit inflation (Angola, Egypt, Ghana, Malawi, Mozambique, Nigeria, Democratic Republic of Congo, Sierra Leone, South Sudan, Sudan, Zimbabwe…) wheels, but it still has spare tires that are randomly inflated and deflated according to the erratic changes in global supply and demand.
A regulatory battle, but there are opinions.
It is this volatility problem that Facebook intends to solve by marketing a cryptocurrency backed by a basket of currencies like the dollar or the euro. The social network, which in less than five years has reached a market value larger than the three major French industry giants (LVMH, L’Oreal and Total) combined, plans to mobilize the necessary means to make it happen.
On this adventure, he was surrounded by around 20 multinational corporations, including those involved in changing our consumer behavior, such as Uber, Spotify, and eBay, as well as payment security giants: Visa, MasterCard, and PayPal. The consortium has pledged to collect huge reserves in response to market operations and even possible speculative attacks, as central banks do every day, to guarantee the stability of the currency. Therefore, Libra aims to be the first reliable and stable private digital currency.
The project has come under scrutiny by U.S. regulators. Congress, the Senate, the Central Bank (Federal Reserve) and the Stock Market Police (SEC) are currently in a standoff because we cannot launch into the wild a new level of money that can unbalance the international financial system without showing their credentials. Facebook is already comfortable with the traceability means its cryptocurrencies offer, whether in tax evasion, money laundering or terrorist financing.
Additional points are now being discussed around the role we intend to assign to this currency in the financial sector. In the next few months, a fierce regulatory battle will play out, but there is also public opinion. It is not impossible to delay the original agenda of launching Libra until 2020. Otherwise, the 15 countries of the Economic Community of West African States (ECOWAS) are likely to experience two currency revolutions that year: one ecological physical circulation, aimed at getting rid of the CFA franc (a currency inherited from colonial times); one is a virtual Libra.
A nightmare for some, a gold mine for others.
To win public opinion, Facebook highlighted issues related to the deployment of payment solutions in developing countries. One-third of the world’s population is unbanked, twice as much as in sub-Saharan Africa. However, most people have access to cell phones. Mobile banking has grown so rapidly in recent years that many urban residents in Africa regularly send money to relatives in rural areas via their mobile phones.
The specificity of Libra is that it is designed to be used with mobile applications such as WhatsApp or Messenger, both of which are properties of Facebook, especially present in India and Africa, and suitable for low-speed internet connections. Merchants in countries unfamiliar with credit card payments are looking for dematerialized payment solutions if this can limit the risk of their daily receipts being stolen. The project’s NGO partners are sensitive to this argument. One of them, the Women’s World Bank, also believes in the potential to expand financial inclusion for women.
Every year, the African diaspora sends more than $60 billion (more than €54 billion) to the continent. The most beneficial countries are Nigeria, Egypt, Morocco, Ghana and Algeria. A country like Liberia collects more than a quarter of its gross domestic product this way. Libra plans to compete with the financial intermediaries currently occupying the space (Western Union, MoneyGram, etc.). The goal is also to simplify the transfer of money around the world, making it as easy as sending an email.
To convince U.S. authorities, Facebook raised market issues related to the intersection of payment information and personal data collected on the social network. In addition to constantly generating users to learn about their habits, tastes, and kinship identities, Facebook wants to understand what they do with their money. An Orwellian nightmare for some, a real gold mine for others. U.S. lawmakers are unlikely to be tempted by business opportunities. At a time when the internet has grown, it has figured out how to be more accommodating than European authorities. He has no regrets. Thirty years later, all GAFAs (Google, Apple, Facebook and Amazon giants) are American.
There are also issues related to surveillance, and even espionage. For lawmakers, the company that collects all this information is American, so that lawmakers can get it through a simple court or government decision. The consortium is expected to be headquartered in Geneva, Switzerland. This location, which is outside U.S. jurisdiction, could also be used for future negotiation phases.
Hundreds of millions of potential customers
Authorities must therefore reconcile economic and geostrategic issues on the one hand, and monetary regulation and personal data protection restrictions on the other. All of this comes against a backdrop of aggressive activity by the banking lobby, which is not about to allow itself to be outdone and not react.
The bank has more than one focus on the project. There is something. In developed countries, if adults seem less interested in another payment method added to another (bank card, transfer, check, cash, etc.), the younger generation won’t hear it. This ear. In the near future, some forms of payment, such as checks or cash, are likely to give way to cryptocurrency settlements via mobile phones.
In emerging countries, long-term challenges are also very real. If the global economy continues to grow at this rate, the unbanked population is likely to enter the current lifestyle of the lower middle class within one to two decades. Hundreds of millions of potential customers could see their payment habits being shaped by Facebook, even before traditional banks came to greet them.
No one knows for sure under what conditions Libra will be deployed in Africa. If some members of the current consortium withdraw by then, a project that is currently just a project can still change its name, form, and even be carried by other participants. To be sure, the technological change to dematerialize payments has definitely begun, and African monetary authorities will have to learn to deal with cryptocurrencies from other continents.