Facebook has got too much skin in the game to back out of its digital currency initiative (Libra); partners can’t risk Facebook growing by itself
“If you can’t beat them, join them.” When Facebook announced its crypto-currency project, many were sceptical that the Facebook Coin or Global Coin, would be another tool in the hands of a big bad company to control the world. People will transact using Facebook’s currency and, in turn, Facebook, which already knows what you are looking (drooling) at, would also know what you are buying. Advertisers will get more avenues to market products. They would know more consumers; Facebook would know consumption pattensrs and the government would know little. Capitalism at its best.
Facebook has ensured that Libra—thankfully, not the unimaginative Facebook Coin or Global Coin—is not just a Facebook company but a global concern. The company has been able to forge partnerships with 28 enterprises to form a consortium to succeed where others have failed. With likes of Mastercard, Visa, PayPal, Vodafone, Uber, Spotify, PayU running the initiative, Libra is bigger, better and more trustworthy.
Facebook has an advantage that none of the banks had. While banks were the first to foray into digital currencies, their approach has been limited. For one, it is difficult to get others to agree to currency versions. A JPMorgan would never use CitiCoin. Two, even if that were possible, a closed system would ensure limited acceptability; who would want migration of their customer to some other bank channel. It is the same reason why even governments’ crypto gamble will fail. A Euro coin would be no different than a Euro, with all its regulatory requirements. Facebook, by virtue of not being a bank or a government, surpasses all this. Libra, being a consortium-led effort, is expected to have wider acceptance. In terms of mass appeal, Facebook already has a user base that transcends the customer base of any bank.
Another thing going for Libra that no other blockchain currency had is stability. Facebook says that the currency will be not be pegged to some arbitrary value, but a host of currencies. So, the underlying asset for Libra will be a basket of currencies, backed by long-term and short-term securities. Thus, Libra may be free of wide fluctuations witnessed by likes of Bitcoin or Ethereum.
But the road for Facebook, or any of its affiliates, is not easy. On the technical side, while blockchain has been successful in closed-loop systems, it has not been tested for mass adoption. With Libra and Calibra—wallet for holding currency—this would be the first time blockchain would be tested this ways. There are more significant problems on the regulatory side. Facebook, to gain acceptance for Libra, would have to comply with the regulatory norms of all the countries it has a presence in, and none have been too welcoming. And, this is the bone of contention between partners. With three partners planning to quit the Libra project—the currency is expected to be launched in 2020—may not be easy. Even if the partners quit, and Facebook finds it difficult to leave, there is no turning back on Libra. Given the scale the currency is expected to achieve, Facebook can’t let it fail.
Libra is Facebook’s biggest gamble to control the next wave of innovations and operate on a global scale. And, it shall do anything to follow regulatory requirements to bring it to life. Although the company claims that it will detach FB operations from those of Libra’s, one has to realise that it will also try to integrate Libra in everything. And, FB already has a foot in the door with payments being carried out via its channels. So, if Facebook maintains that people can transact using Libra, it will open avenues for gathering more data. So, while Libra may not collect information, FB Messenger or WhatsApp, by integrating the service, will, and this is where control of global finance comes in, which no company or government would wish to leave to Facebook—or let go off given a chance.
Central banks and governments need to realise that there is no stopping the march of Facebook. If they don’t agree, Libra would still be able to operate as Bitcoin has. The best thing would be to negotiate terms, whereby they can keep a watch on Facebook’s activity. After all, you can’t beat them now.