Home News Science&Tech How Facebooks currency can bless the world, but also potential danger

How Facebooks currency can bless the world, but also potential danger

12 min read

It was the talk of the week in the financial world: the announcement of a digital currency from Facebook. The libra must be introduced next year, along with a digital wallet to store libras. Facebook is supported by a large number of parties to set up the crypto currency, including credit card companies Mastercard and Visa and music service Spotify.

It means that 'hard' coins such as the euro and the dollar can get a big competitor. But there are also doubts: about privacy, security and about the consequences for the stability of the financial system. "We do not want to impede innovation, but we must of course continue to monitor the risks," says De Nederlandsche Bank.

Pay on all Facebook apps

First the idea: somewhere in the first half of next year, consumers should be able to convert euros, dollars or other currencies into libras. You can then use it as a payment method via the Facebook wallet. Users of Facebook Messenger and WhatsApp must be able to make payments with the libra in the chat apps. There is also a good chance that Facebook daughter Instagram will accept the coin if you want to buy clothes or other things in the app.

With this, the system can in one fell swoop become an easy means of payment for many people. A strategy that already works well in China: the WeChat app has become part of the financial system there. To really make the libra a success, the coin must be accepted on a large scale – for example by web shops.

The biggest motivation for the platform seems to be hidden in that digital wallet: if everything goes as Facebook hopes, it will replace the banks' payment system. And with that it gains access to a huge pile of data. The company plans to eventually offer other financial services through this wallet, such as loans.

"Disruptive for banking world"

"This is a big story," responds economist Arnoud Boot. "The libra can be very disruptive for the banking world. Facebook will immediately try to become very large, so that a point-of-no-return is achieved." It is hard to imagine a better survival strategy: the social network is then no longer just the place where you view holiday pictures and keep in touch with friends, family and colleagues, but de facto your bank.

"If libra can take over payment traffic from banks, the question is what remains for them," says Boot. The platform therefore also questions the future of banks in one fell swoop.

"I think that banks are afraid that they will no longer know what people are doing with their money," says fellow economist Rens van Tilburg. "That goes to the heart of the bank. They need information about customers in order to make risk assessments. If they can no longer do so, they will incur a loss and the banks as we know them will cease to exist."

Facebook wants to introduce the currency worldwide, but the PR campaign has a clear focus on emerging economies. For example, the company speaks of the 1.7 billion people who do not have access to the banking system. Moreover, the costs in those countries are often very high. According to the World Bank, a migrant who wants to transfer 100 euros to his home country pays an average of 7 euros in commission.

"It could work, but I am not yet fully convinced," says Petra Hamers, who is involved in financing in emerging economies at aid organization Oxfam Novib. "One of the problems they face is that the customers who often have insufficient reach on their phone are often the people who don't have access to the banking system. I don't know if Facebook can reach these people."

Moreover, according to economist Van Tilburg, the question is whether the libra is the solution for the high costs. "The big question is of course: will the shops in the African countryside accept the libra? If that is not the case, then you have to exchange your libra again at a money changer. And he will probably ask for such high rates."

Interest for companies, not for you

Facebook has so far brought in 27 parties to set up the new currency, which is based on blockchain technology. They all pay at least $ 10 million; a trifle for big players. Facebook is aiming for a hundred participating parties at the real launch of the coin.

In exchange, they can collect the interest from all the money that users have in their digital wallets. Users do not receive interest on their libras. "In this way we pay a perpetual tax to Facebook and his friends," Van Tilburg says. "They will become very rich here."

The libra can also have a major impact on local economies. Currencies that are traditionally unstable, such as the Turkish lira or the Argentine peso, can become even less valuable if consumers convert their money en masse to libras. That can plunge an economy into a deep recession. People who have not exchanged their money for libras in time will see their savings evaporate.

And of course: the supervision

"The question is: should central banks approve this?" Says Van Tilburg. "To what extent do regulators have something to say about this? That depends on how you define the libra: is it a bank, an investment fund or something that falls outside the existing financial regulation? And in the latter case: should it stay that way? ? "

Van Tilburg has been arguing for some time for the arrival of new payment initiatives that are competing with existing banks: "But then it must be more open and in the interests of people. And not a small group of companies that mainly think of themselves, such as in the case of the libra is the case. "

De Nederlandsche Bank does not yet want to comment on whether Facebook can simply get started in the Netherlands; too little is yet known about the practical details. A spokesperson for the bank says they "don't want to hinder innovation, but of course have to keep monitoring the risks." This sound can also be heard from the US and the United Kingdom.

In the US, politics is starting to stir. The Senate wants to hear Facebook about privacy issues and the Democrats believe the plans for the currency should be put on hold so that Congress and regulators can first take a critical look at it. "Given Facebook's problems in the past."

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