On Tuesday, Facebook announced that it had partnered with 27 large firms and organizations to launch a new digital currency, the Libra. If it comes on stream, it could create a new global financial system, with several billion people conducting daily transactions using the new currency.
News of the project has sparked speculation about what it could mean for business across the world, as well as how financial regulators could respond to it. Reactions have been mixed; some have hailed the Libra as the dawn of a new era for international money transactions; others have expressed fears that it would make Facebook too powerful.
Facebook itself has assured the public that it isn’t foisting its agenda on the planet. Reports say that the Libra project will be operated under a subsidiary of the company, called Calibra. The project itself will be run by the Libra Association, a non-profit body based in Switzerland, which is said to be independent of Facebook.
This doesn’t seem to have changed the skew of the public’s perception of the project in any significant way. Sceptics continue to question the tech giant’s motive; the more optimistic analysts still think it’s a potential force for good.
But what could this new cryptocurrency mean for you? What extra things could you achieve with it? And what could it take away from the current financial systems as we know them?
How Facebook Libra Could Work
The Libra is a cryptocurrency. This means that it isn’t physical money, but a ‘digital currency’ which nevertheless can be exchanged for your local currency.
However, unlike other crypto-currencies (such as Bitcoin or Ethereum), Libra will not be subject to wild swings in value. That’s because it will be backed by international currencies like the dollar and euro, rather than have its value determined by the demand and supply for mined cryptos.
You will be able to set up a Libra digital wallet with Facebook or any other company that accepts Libras if you’re able to verify your identity with a valid government document. The digital wallet will allow the currency’s holders to store it. You will be making payments from, and receiving money into this wallet.
Benefits You Could Enjoy With the Libra
1. Purchase Products Locally
If the Libra comes on stream, you could purchase products and services with it from companies which accept it. Given the calibre of its initial backers (PayPal, Visa, Mastercard, and Uber, to name a few) it’s very likely to catch on with a large number of businesses across the world.
Facebook will be creating digital wallets which will allow the currency’s holders to store it. Users will be able to draw from their Libra reserves to spend on whatever it is they would like to buy.
Admittedly, Nigeria already has a growing local payments ecosystem. But the Libra could be an interesting addition to the available options, partly because of the next benefit we’ll talk about.
2. Do Business Internationally Without Payment Restrictions
This is significant, especially for Nigerians who have struggled with the restrictions placed on international transactions by payments companies like PayPal.
Libra could be transferred and received by anyone who has a digital wallet for the currency. So if you’re a graphics designer in Nigeria who does a job for someone in the United Kingdom, your client could pay you directly in Libras. You could then have Calibra (the Facebook wallet) convert the money into naira for you.
3. Transfer Money Across Borders
You will also be able to make transfers to other people, regardless of where they are in the world. This will be competition for international money-transfer operators because users could find the Libra system more convenient than the currently available alternatives.
International remittances to Nigeria (from Nigerians in the diaspora) could rise further as well. In 2018, remittances to the country totalled $25 billion- about 6% of its GDP.
4. Make Investments
This isn’t going to be part of the initial set of things you could be doing with the Libra, but it’s possibly going to happen somewhere down the line. As the new financial system grows and strengthens, it’s expected that the currency will be accepted enough to be used for investment purposes.
5. Give the Unbanked Greater Access to the Financial System
You won’t need a bank account to receive money from your sister in the United States, or to send money to your son in Ghana. The Libra platform will let you transact over borders in fully convertible currency even if you don’t have a bank account.
Facebook itself says the unbanked form part of Libra’s target user base. The company claims that it wants to reach 1.7 billion people who fall into this category globally.
Possible Issues With the Libra
Some analysts have said that the cryptocurrency takes more financial transactions away from the watchful gaze of regulators, and might make it easier for fraudsters to launder money.
There have also been calls for Facebook to shelve its new plan, on the grounds that it would give the tech giant more monopoly power. Legislators in the United States, where the company is headquartered, have been critical of Facebook’s intentions for this reason.
When Will the Libra be Available?
The Libra will begin to be used in 2020 if its parent company’s plans are executed as scheduled. But it could be held back by regulatory scrutiny, as governments the world over try to figure out how to respond to it.