After a long period of speculation that Facebook, a social media giant, was developing their own crypto coin, the firm recently made it public that it’s developing a blockchain-based stablecoin. With its billions of users, Facebook’s Libra project is reportedly eyeing to facilitate cross border payments. However, the news elicited different views from the traditional banking sector and regulators across the globe.
Not even China could ignore Facebook’s Libra project
China, although it banned cryptocurrency activities, could not ignore the effect Facebook’s Libra project would have on the Financial sector. Fortunately, most of the views are positive, with expectations running high that Facebook will reconcile the discrepancies witnessed when sending money across borders. Facebook’s Libra project rekindled hope that it’s possible to shift from overly relying on traditional banking institutions and strongly enter the era of a virtual currency-led economy.
According to Wang Yongli, former vice president, Bank of China:
“Now, when people discuss FB’s (Facebook’s) cryptocurrency, it seems that its vision has been realized or can be realized. It is believed that its 2.7 billion users will naturally become Libra users, and its application scope will exceed the currency of most countries, rather than careful analysis.”
Not an easy road for Facebook’s Libra
However, Yongli notes that real hurdles are surrounding Facebook’s Libra project and which will consequently influence its adoption rate. Some of these hurdles, according to the former Bank of China’s vice president, include competition and implementation.
Some of the concerns that Yongli puts forth include how Facebook’s stablecoin can be “linked to fiat money.” He also questions whether the stablecoin can replace government-issued currencies and if it can have a substantial effect on the current traditional financial sector.
“Libra, although initially supported by a basket of legal currency, was widely accepted. After that, it is possible to become a new independent currency from the legal currency. This sounds quite reasonable, but in reality it is a misunderstanding of the credit currency.”
Why the shift from physical currency to a credit currency?
As per the former vice president of Bank of China, this shift – from a physical to a credit currency – has been defined by the need for more money while its functions become “more and more abundant” with the value scale of money being the most significant.
Since Facebook’s Libra project has its stable coin linked to a basket of money, will it be a requirement to first acquire the basket of money in order to get Libra? “How is the exchange rate risk of the holder controlled?”
Additionally, Yongli has the opinion that Libra should be able to provide anonymity. Unfortunately, he is skeptical whether regulators will tolerate the anonymity aspect.
Lastly, the former Bank of China VP notes that:
:“There is no interest in holding Libra. The income of the legal currency handed over is owned by the foundation….Where are people holding Libra’s application scenarios, is it really more efficient and cheaper than using legal tender?”
What do you think? Is Facebook all hype, no bite? Let us know in the comments below.