Facebook’s recent cryptocurrency offering, Libra, is witnessing an exodus of partners and collaborators.
Of the earliest 25 members of the Libra association, seven of its high-profile and critical members have already distanced themselves permanently from the association. These members include eBay, PayPal, Visa, Mastercard, Stripe, Mercado Pago, and most recently, Booking.com.
This exodus from the Libra Association would hurt Facebook chief Mark Zuckerberg for two reasons. Firstly, companies like PayPal, Visa, and Mastercard could have been instrumental in facilitating the mass adoption of Libra across the world, given their elaborate market coverage and user base. Two, the exit of these companies could further fuel distrust and doubt amongst the existing partners, and could well put the entire offering at risk.
Visa and Mastercard’s participation, from the initial days, raised doubts amongst experts and observers as to why would any company be willing to fund or further a system that makes their own offerings obsolete. However, it was not a personal business interest that resulted in the exit of these companies, but crackdown from regulators.
Since the day of Libra announcement, regulators had been sceptical of Libra, given how it could eliminate cross-border taxation, result in money laundering and also lead to direct sponsoring of cross-border terror, as explained by Swarajya in one of its earlier analysis.
Earlier this week, Randal Quarles, head of the global Financial Stability Board, in a letter to all G20 finance ministers, stated his concerns against the likes of Libra.
Representing all the large financial centres of the world, Quarles, in his letter, said that the global digital stablecoins could replace domestic currencies and result in challenges pertaining to stability, consumer rights and protection, data privacy, laundering, and terrorism.
Quarles, however, is not alone. In September, Bruno Le Maire, Minister of Economy and Finance for France, stated his concerns against Libra and how it could add to the money laundering networks.
The other sceptics include the Bank of England and the German government who have been consistent in voicing their concerns against cryptocurrencies, given a global digital cryptocurrency, in the long run, negate the importance of monetary policy, and thus, the central banks.
The backlash against Libra comes weeks after Facebook paid $5 billion to settle the probe launched against it in the wake of the Cambridge Analytica scandal. Already, the company faces numerous anti-trust and privacy violation cases in the United States and Europe.
According to a report in the Financial Times, the exodus was not motivated by laundering and privacy concerns alone. As per the report, Facebook had oversold the participation of its members. The agreement, at the time of the launch, included a non-binding agreement and a contribution of at least $10 million from each participant.
In August 2019, the European Union launched an independent investigation into the working of Libra. Back home, Zuckerberg will be testifying before the Congress later this month, addressing concerns against Libra.
The exodus from the Libra Association was also fueled by the Senate Banking Committee’s warnings to Visa, Mastercard, and Stripe, stating their own businesses could come under scrutiny if they continued their involvement in Libra.
Facebook, however, is engaged in extensive damage control.
To balance the news of the exodus, the company claims to have over 1,500 parties, interested in the programme, with over 180 of those qualified to be members. Even with the likes of PayPal, Visa, and Booking.com bidding farewell to Libra, the association still has Lyft, PayU, Uber, Vodafone, and Spotify, amongst others, as its members.
If Facebook wants Libra to see the light of the day, it must address the following. Firstly, how does it intend to separate its social network from its cross-border financial network?
Two, how can it ensure that no money laundering takes place, given one does not need a government identity to sign up for the network. Three, how can it address the prevailing lack of trust in Facebook given its opaque data sharing policies with multinationals, especially Chinese firms like Huawei.
Alternately, Zuckerberg could choose to launch Libra, as a beta test, in countries like Zimbabwe where hyperinflation has rendered the local currency useless. For willing countries in Africa, Libra could be a payments facilitator in US currency. However, the concerns for laundering and sponsoring of terrorism shall still remain.
For now, the road ahead looks a difficult one to traverse for Zuckerberg. Unless he engages in addressing concerns of central banks and sceptics across the world, Libra will come apart completely before becoming a reality, much like Facebook’s Free Basics (internet.org) idea.
Tushar is a senior-sub-editor at Swarajya. He tweets at @Tushar15_
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