Libra’s proposal to Congress last week was met with heavy criticism as it was hijacked into a hearing of the company’s past mishandling. For those of you who have not read previous Simon Says articles, I shall give a concise explanation on what Libra is to help you catch up.
In a nutshell, Libra wants to be the new Dollar. It wants to be backed by real-world currencies, namely the US Dollar, Euro, Japanese Yen, British Pound and Singapore dollar. Unlike Bitcoin and Ethereum, it will be relatively stable unless there is a global recession. You will not wake up to see Libra decrease by 10% or increase by 50%.
So what is the problem here? The problem is that Facebook, as a global platform, has over 2.7 billion users, will easily overthrow banks and dismantle the traditional currency system easily.
The next problem is that Facebook has had a troubled past with privacy issues. The Cambridge Analytica Scandal, which cost spilt user information of millions of people was directly linked to Facebook’s carelessness. If such an incident were to repeat, billions of users’ spending habits and big data would be used against them.
The lack of regulation to cryptocurrencies means easy money laundering and black market deals for illegal purposes. The money is basically untraceable, which means governments would not be able to do anything to control transactions. It is also an easy channel for tax evasion, as transactions leave no taxable trace.
To add oil to fire, big players in the Libra Association like Paypal, eBay, Visa and Mastercard have pulled out as Germany and France announced that they both agreed to block Libra in September. It is particularly dangerous for a private entity to claim monetary power, which is inherent to the sovereignty of nations.
What is next for Libra? On one hand, big banks have finally come to meet their nemesis – competition from an internet giant and Libra may really change the fate of the banking industry. On the other hand, the financial sector is the most heavily regulated sector and Libra may have bitten off more than it could chew. This could go either way.