In June, Facebook announced that it was working on a cryptocurrency that will be launched in 2020. To work on the currency, the company teamed up with 27 other large companies like Visa and Mastercard. These companies had committed at least $10 million for the project. Because of their size and scale, these companies would reach billions of people from around the world. For example, people will be able to pay their Uber trips with Libra. They would also be able to pay for their Booking hotels using the currency. Facebook advertisers will be able to pay for ads using the currency.
In the white paper, Facebook said that the goal for the new currency will be to reach out to the global population. With the currency, people from the developing countries will have a similar purchasing power with those in countries like United States and Germany.
To ensure that the currency is safe, Facebook announced that it would put safeguards in place. For example, Facebook will not be responsible for running the currency. Instead, it will be run and operated by an independent organization called Calibra that will be based in Switzerland. Further, each currency will be backed by a group of global fiat currencies like the USD and euro.
However, more challenges are emerging and there are questions on whether the currency will be developed at all. In the US congress, a bill has been introduced to stop large tech companies like Facebook and Apple from starting blockchain-related products. The bill has been introduced by a group of Democratic representatives. While it is expected to pass in congress, it will not go past the senate because most republican senators view this as a way of limiting innovation.
On Friday last week, Donald Trump expressed his opposition for the currencies. In a tweet, he criticized cryptocurrencies for not being currencies. He also said that companies like Facebook that are proposing such products should get a banking license. In the tweet, he said that the world was better-served by the US dollar and that an alternative currency was not worth it.
Yesterday, Steven Mnuchin said that the currency could have a national security risk. He said that many players had tried to use the cryptocurrencies to fund their malign behavior. He said that if Libra will have to be developed, it will need to have proper anti-money-laundering safeguards. Fed Chair, Jerome Powell has also warned about that. His statement came a day before Facebook’s head of the Libra project is expected to testify before the Senate Banking committee. In a statement before the hearings, he said that the Switzerland financial watchdog would supervise Libra and that the currency will not replace national currencies or undermine the role of central banks.
These concerns have been voiced by many other foreign governments, especially those in the European Union. The ECB and BOE too has warned about the impacts of the currency. Therefore, there is a likelihood that Libra is dead on arrival.