21 Jun 2019
Facebook has unveiled libra, a cryptocurrency that will enable users to make international payments over Messenger and other group platforms like WhatsApp – perhaps from as soon as 2020.
Here’s how it looks likely to work: a user would buy libra and keep a balance of the currency in Facebook’s digital wallet, called Calibra. The user could either transfer currency to another user – say a family member in another country – or purchase items or services from a participating online retailer. Apart from Calibra, users could buy and sell libra through third party wallets or local resellers, such as grocery stores, in the same way as mobile phone owners already top up their data.
A key rationale for libra, according to Facebook, is to facilitate financial inclusion. It would enable millions of users without bank accounts in far-flung parts of the world to transact in ways that formal financial systems have denied them. Because they could send and receive libra on a peer-to-peer basis, without the need for a bank, the transactions would be cheaper and faster, too.
Libra appears designed to overcome a common criticism of existing cryptocurrencies like bitcoin and ethereum – that they don’t satisfy three essential characteristics of money: a medium of exchange; a store of value and a unit of account. The argument goes that since they are not widely exchangeable, and since their widely fluctuating exchange values make them unattractive for storing wealth or pricing goods and services, they are not really viable as money.
Where the exchange rate of other cryptocurrencies is purely driven by supply and demand, libra will be priced according to a basket of bank deposits and short-term government bonds in reputable currencies such as the dollar, pound and euro. It will therefore be a “stable coin”; less likely to see the same fluctuations as other digital currencies. Having said that, the new currency raises a number of issues that need to be seriously considered before it launches:
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