Libra can be exchanged for another currency directly on a smartphone
As Deutsche Welle notes, Facebook's plans to launch its own cryptocurrency called Libra have met serious resistance from the US administration and regulatory authorities. Washington is concerned that the new means of payment could be used, among other things, for illegal operations – for example, money laundering, human trafficking, and terrorist financing.
It is worth noting that such concerns are far from new. In mid-July, US Treasury Secretary Steven Mnuchin stated that Facebook's new development, along with other cryptocurrencies, poses a threat to the country's national security.
Libra's potential reach – 2.5 billion people
The US Treasury Department warned Facebook that the internet giant must adopt the same anti-money laundering and counter-terrorist financing measures as other financial service providers. However, Facebook is far from that yet, so the company will find it difficult to get the 'green light' from US authorities to launch the cryptocurrency.
Earlier, US Federal Reserve Chairman Jerome Powell emphasized that the plans to launch Libra raise many questions for him – in particular, regarding user data protection, anti-money laundering, and US financial stability. These factors become even more significant given that Facebook's total audience currently stands at 2.5 billion people: theoretically, each of them could start using the new electronic money.
Money transfers and online purchases
It is planned that at the initial stage, Libra will be used for money transfers made in different currencies. Thus, the cryptocurrency will directly compete with services such as Moneygram and Western Union, which charge additional fees, as well as banks that charge high commissions for international transfers. As Facebook emphasized, this will provide access to the international financial system, including for people from poor regions.
It is expected that money transfers with Libra can be made directly in Facebook's messaging services WhatsApp and Messenger. In addition, if a user's Libra account is linked to their bank account, they can exchange electronic money for another currency directly on their smartphone.
In the long term, Libra is intended to become a universal means of payment: people will use it to make online purchases. To this end, Facebook has entered into a partnership agreement with 28 large companies involved in electronic payments, including Visa, Mastercard, Paypal, Vodafone, and Ebay.
Will Facebook start issuing loans?
Facebook's plan envisions Libra as a so-called stable electronic currency: this means its exchange rate will be pegged to traditional currencies – in particular, the dollar and the euro. Thus, the electronic money will be 100% backed by real currency reserves and assets.
However, experts suggest that this may not always be the case. 'Today, the cryptocurrency developers expect Libra to be 100% backed, but it is quite logical that at some point they will decide to reduce this figure to 50. And then they will have a powerful lending mechanism,' explains Hendrik Leber, manager of the financial company Acatis.
In the classical financial system, banks have a monopoly on issuing loans. Moreover, they can issue loans only partially backed by real cash reserves. This means that banks essentially create money out of thin air.
Donald Trump wrote on Twitter in mid-July that cryptocurrency creators would also need to obtain banking licenses. If companies like Facebook want to enter the financial business, they should be subject to the same rules as banks, the US president believes.
An alternative to state currency?
The topic of cryptocurrencies was also discussed at the highest political levels internationally – at the G7 finance ministers' meeting held on July 17 in France. On the eve of the meeting, the newspaper Bild quoted a document from the German Finance Ministry: it stated that the German government, together with the country's central bank, intends to figure out 'how to prevent the creation of a real alternative to state currency.'
The finance ministries of France, Britain, and the US are also critical of Facebook's plans. 'We plan to carefully examine whether all current rules are being followed and whether they need to be changed in the future to ensure the stability of the international financial system,' said German Finance Minister Olaf Scholz following the G7 meeting.
Cryptocurrency – the beginning of the end of banks' dominance?
Meanwhile, cryptocurrencies are causing headaches not only for financial regulators but also, above all, for banks. 'I think that all major online services – for example, Amazon, Alibaba, or Google – will launch their own cryptocurrency in the coming years. Against this backdrop, the question arises: what role will banks play in this game?' wonders Hendrik Leber.
Meanwhile, Burkhard Balz, a representative of the German central bank, emphasized in an interview with the newspaper Börsen-Zeitung that Libra currently raises more questions than answers for him. He fears that the new cryptocurrency could significantly displace or weaken its competitors. 'We would like to know what will happen to traditional payment systems and banks if, in the future, payments are increasingly made bypassing traditional channels. After all, transaction fees still generate considerable income for banks and payment services,' Balz states.