Is Facebook’s Libra the next PayPal?

 Is Facebook’s Libra the next PayPal?

Chris Skinner

Chairman at The Financial Services Club

Views 919

Is Facebook’s Libra the next PayPal?

30.04.2020 12:45 pm

What if we make money truly global, stable and secure? That’s Libra’s ambition and I’ve got to hand it to the guys at Libra. Having announced their idea to create a global currency last summer, and then see it ripped to pieces by regulators, they’re back.

Yes, it’s Libra 2.0.

What’s the difference between 1.0 and 2.0?

Well, I would summarise it but Barry Eichengreen, Professor of Economics and Political Science at the University of California, does a good job here:

White Paper v2.0 replaces, or more precisely supplements, the original basket-based stablecoin with a set of single-currency stablecoins.  More consequentially, it seeks to address a range of regulatory concerns.  “Anyone,” including law enforcement, will be able to “audit the accuracy of all operations.”  Libra Reserve, made up of cash and short-term securities that serve as stablecoin backing, will be held by a “geographically distributed network of well-capitalized custodian banks.”  Only Designated Dealers (DDs) who “commit to making markets with tight spreads” will interface with both the Libra Association on one side and Libra users on the other.  DDs, we are assured, will be “regulated, well-capitalized financial institutions.”

On the consumer-facing side, DDs will interact mainly with Virtual Asset Service Providers (VASPs), large entities that provide financial services to end users.  VASPs will be regulated, although by whom is not clear, and will have to comply with the anti-money laundering and anti-terrorist finance requirements of the Financial Action Task Force, the relevant standard-setting body. 

All well and good but, as Barry points out, there are still many issues to resolve around money supply, seigniorage, capital buffers, lender of last resort and more.

My own take is that you have to applaud that they’re not giving up. I love the idea of a global digital currency, backed by a basked of national currencies tagged to the G20. I hate the idea of a currency system organised by Facebook, as do most regulators.

Will this amended version work?

I’m not sure. If you read Barry’s post, it is clear that it still has a way to go and, by the time it gets there, The Financial Times claims it’s just another Paypal:

Firstly, instead of creating a single new currency, Libra plans to launch a series of different digital coins, each backed by a different government currency one for one. At a stroke, the association has abandoned its attempts to create a floating digital currency that could even have rivalled the dollar.

Secondly, Libra is scrapping its ambitions to move to a “permissionless” system, whereby anybody could help run the network, and no single authority would have control, as was the original vision of bitcoin. 

Thirdly, the association that runs the coin will now vet any wallet that is launched on the network, and beef up its own scrutiny of what is happening there, rather than leaving it to local regulators.

So what is Libra today?

An idea. It’s just an idea. In fact, if you were a gambler, you’d probably bet on bitcoin as an idea more than Libra, and I wouldn’t bet on bitcoin as an idea. So no, I wouldn’t bet on Libra either, especially after Visa, MasterCard, PayPal, Stripe and others walked away due to the regulatory pressure.

In fact, that regulatory pressure – which was totally predictable – will continue until Libra becomes just a transaction system based upon national currencies and tied to all the regulatory requirements of existing payment systems … just like Paypal.

The article was originally published on thefinanser.com

Latest blogs

Granville Turner Turner Little

The Lockdown Money Revolution

Many Brits have found that lockdown has been beneficial for their money, having cut back on personal spending and managing to put away some extra cash. According to eToro, Brits with unspent discretionary income are set to accumulate £75.5bn in Read more »

Sandra Higgins Sysnet Global Solutions

Are You ‘Prescribing’ the Right Security Solution to Your Merchants?

When it comes to leading a healthy lifestyle, eating the right food, taking regular exercise, and maintaining a positive mindset are key. However, despite these best intentions and practices, you still might not get all the nutrients your body needs Read more »

Robert Flowers DivideBuy

It Doesn’t Have to Be the End – How Retailers Can Grow in Light of COVID-19

It’s no news that the retail industry has been flipped on its head by the COVID-19 pandemic. Due to the lockdown, most in-store operations have been shut down, and nationwide furloughs, reduced pay and steady streams of income at risk have fuelled a Read more »

n/a n/a

4 Ways to Protect Your Small Business Against Cyber Attacks

Just because you are running a small scale business doesn’t mean you are beyond the reach of hackers and attackers. Many small businesses have this thought, which is why they do not invest in their cybersecurity. Unfortunately, every year small Read more »

Kirston Winters MarkitSERV, IHS Markit

IBOR transition update: €STR grabs a foothold?

In the latest development in the IBOR transition, on the weekend of July 25th, we saw the major CCPs perform the much-anticipated Euro discounting and price alignment transition from using EONIA to EuroSTR (a.k.a. €STR) for all Euro OTC interest Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel