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  • Thierry Spanjaard

Facebook Libra faces an outcry from governments worldwide

Facebook has announced Libra, its cryptocurrency, a couple days ago, saying it would launch in H1/2020. The project includes a Facebook subsidiary Calibra, that will offer digital wallets, allowing users to buy Libra online and then to exchange it using the Libra app, Facebook Messenger or WhatsApp. The system is based on cryptocurrency fundamentals: a decentralized blockchain, open access, distributed governance and security through cryptography.

Facebook says it plans to use compliance checks on customers who want to sign up, verification and anti-fraud processes to prevent theft as well as automated systems to monitor fraudulent activity. Calibra, will at first only provide a wallet to hold one's Libra and transact over Messenger or WhatsApp, but could offer financial services to customers, such as lending and investing, when Libra takes off.

To justify its development Facebook says it primarily targets the 1.7 billion unbanked worldwide that are nevertheless smartphone owners and Facebook users. Facebook positions itself as bringing a solution for efficient and cheap money transfers compared to the established payment industry, especially when it comes to international transfers such as remittances. However, one cannot anticipate a Facebook project to be targeting only the unbanked population. The social network goal is implicitly threatening to displace traditional currencies for the rest of us.

Facebook adds its Libra cryptocurrency will be based on an open source blockchain and backed by a reserve of assets designed to give it intrinsic value. The system will be managed by an independent not-for-profit "Libra Association" based in Geneva, Switzerland. Facebook goes on with an impressive list of bakers: Mastercard and Visa, Paypal, PayU, Stripe, Lyft, Spotify, Uber, Iliad, Vodafone, Coinbase, venture capitalists such as Andreessen Horowitz, nonprofit organizations, … providing a reserve of real assets called "the Libra Reserve." Each founder paid a minimum of US$ 10 million (EUR 8.8 million) to join. Facebook hopes to attract 100 companies to join the Libra Association.

"Libra is designed to be a stable digital cryptocurrency that will be fully backed by a reserve of real assets — the Libra Reserve — and supported by a competitive network of exchanges buying and selling Libra," says the project White Paper. This is getting really close to the definition of a real government-issued currency. In the ongoing battle between governments and corporations in the control of the world, Libra is a new step towards a corporate supremacy.

Of course, governments worldwide are not ready to let their power go!

The European Central Bank is asking for more details. The British Financial Conduct Authority said there is not enough information to understand Libra and that it would not allow Libra without further disclosure. The Banque de France governor Francois Villeroy de Galhau said that Libra would have to respect anti-money laundering regulations and would have to seek a banking license if it was to offer banking services. Bruno Le Maire, French Finance Minister, already called upon the Group of Seven central bank governors to prepare a report on Facebook’s project for the upcoming July meetings.

In the US, Senator Sherrod Brown, a Democrat from Ohio, cautioned: “Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.” The US Congress Financial Services Committee has called for Facebook to halt development on its cryptocurrency Libra until Congress has had time to take a look at it. The US Senate and House of Representatives will hold hearings on Facebook on this project mid-July.

Facebook is known for its numerous privacy issues, from the Cambridge Analytica scandal to an “ongoing inquiry” by the US Federal Trade Commission for repeated privacy violations that would lead to a US$ 5 billion (EUR 4.4 billion) penalty. Facebook's Calibra will only share customer data with Facebook or external parties if it has consent, or in “limited cases” where it is necessary, Facebook said. That could include for law enforcement, public safety or general system functionality. Kevin Weil, vice president of product for Calibra, said Facebook would not use Libra financial data to target ads.

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