Home News Science&Tech Facebook comes with a digital currency, but for whom is that interesting?

Facebook comes with a digital currency, but for whom is that interesting?

8 min read

No more dollars or euros: from next year you must be able to pay on Facebook Messenger and via WhatsApp and a special app with libras. It is a new digital currency and it receives support from another 27 parties besides Facebook. At the start, this should eventually be one hundred.

Among them are credit card companies Mastercard and Visa, taxi service Uber, payment service PayPal and music service Spotify.

The idea is that you deposit your local currency in your 'wallet' on Facebook (for which it is setting up a new subsidiary: Calibra), which is then converted into libras.

The exchange rate of the digital currency must remain somewhat stable compared to, for example, the euro and the dollar. Blockchain technology was chosen for checking transactions. You must then be able to send money within Facebook apps, but also make purchases and even pay fixed costs – for example insurance.

New financial system

The ambitions of the organization and therefore also of Facebook are great. They want to develop a new financial system that is not in the hands of Wall Street or the central banks. "The time seems ripe for a better system," said David Marcus, who leads the team investigating blockchain technology at Facebook, to The New York Times.

Marcus believes that this can lead to major changes. The company emphasizes in a blog post that you can do a lot with an internet connection, but saving, sending and spending money is still not easy. Facebook wants to change that.

And Facebook is also one of the few parties that is capable of doing something like this, with over 2 billion users. The New York Times calls the initiative "the most far-reaching initiative at a large company". Crypto currencies are currently known for their highly fluctuating value, with Bitcoin as the best known example.

That is precisely what the Libra Association, in which all participating parties are united, wants to prevent. The value of the new digital currency must be stable by linking the value of the currency to bank deposits and short-term government bonds of countries with stable currencies such as the dollar, the pound and the euro. This means that if 10 billion euros in libra is outstanding, there must be just as much money in government bonds, for example.

The parties who have entered the libra can earn money by the interest charged on the loans. There is also a chance that (low) transaction costs will be charged.

"I am impressed by how well thought it is," says Teunis Brosens, crypto expert and economist at ING. "The company has chosen to set it up openly, together with other parties in an independent foundation. These all seem to me to be important steps to prevent suspicion." Facebook will not have complete control over the organization: just like the other members, the social network has one vote.

What Brosens does question is how Facebook will deal with data collection. The company says that financial information from your wallet will not be shared with Facebook itself or a third party "without the user's consent". The data will also not be used for personalizing advertisements. Instead, the idea is that the new Facebook subsidiary, Calibra, will eventually be able to offer financial services.

"While the combination of transactions and social data is so interesting. That is the treasure chest for Facebook," says Brosens. "I kind of assume that Facebook will ask users to share data because it improves the 'experience' and that many people will agree. The coin itself is not that interesting for the company, the data is that is. " For example, he expects Facebook to be able to use the information to offer new financial services.

With the weight of Facebook behind it, the currency has a good chance of success, thinks Brosens. But the question is for whom it is interesting. The Netherlands is known for its good financial infrastructure, with payment options such as iDEAL and Tikkie, which means that unlike, for example, the US, we do not have to deal with extra costs for paying with a credit card.

Emerging economies

Facebook seems to be focusing on emerging economies in Africa, South America and countries like India. There may be a greater need for a good digital payment method. "If only 10 percent of Facebook users start working with libra, it is already a huge success," says Brosens.

Facebook asks its users to have faith in the company. If it goes as the platform wants, they will organize (part of) their financial household through a subsidiary of the group. But precisely when it comes to trust, Facebook's reputation is not in good shape.

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