The announcement about the new global currency, Libra, has seen a frenzied response across the world and within our own DFS community. Many are taking to social media to share their ideas, excitement and concerns.
Libra is marketing itself as ‘being for everyone.’ It cites the number of unbanked globally and is positioning itself as a solution for those without access to formal finance. Its hope is “to create more access to better, cheaper, and open financial services — no matter who you are, where you live, what you do, or how much you have.” Libra will provide global, open, instant, and low-cost movement of money, which could bring change into the payments and particularly international remittances space.
The goal of Libra is:
- Stable currency built on a secure and stable open-source blockchain
- Currency will be backed by a reserve of real assets
- Governance will be provided by an independent association
The Libra Blockchain will be open access, allowing organisations to build products on top of it and to encourage innovation. It will use a Byzantine Fault Tolerant (BFT) consensus approach, with safety and security as its highest priorities. Unlike other blockchains, it will be a single data structure and not a blocks of transactions – which will allow simpler data verification. Unlike other cryptocurrencies, Libra will be backed by a reserve of real assets, bank deposits and short-term government securities. These assets will be geographically distributed and held within a network. This will increase stability of Libra and also the trust that consumers have in Libra. Libra can be converted into local currency based on an exchange rate. The assets held will help minimise volatility in the exchange rate.
The Libra Association is an independent, not-for-profit organisation, based in Switzerland. Members of the Association will initially be those working on developing the Association, and are from the following industries: payments, technology and marketplaces, telecommunications, blockchain, venture capital, and non-profit and multilateral organisations and academic institutions. Facebook play a key role during 2019, creating the Association and Blockchain. After launch, it will be equal to all those other members in the Association. The Libra Association will also offer grants to support projects aimed at increasing financial inclusion and social impact.
For more details on Libra, you can read the whitepaper here.
The pitch around Libra is exciting and many of us are in the DFS space because we want to see more unbanked people becoming financially included. We at DFI have been having debates about the plans, operations and impact of Libra. Some of our discussions have included:
- Smartphones and data are needed which many unbanked don’t have
- How will you cash in and cash out, particularly when you don’t have a bank account?
- If you need to cash out, then how is it different from what currently exists?
- How will wallets be issued in each country and will it need a licence in each jurisdiction?
- If there are a limited number of validators, why need blockchain?
- Will currency exchange volatility really be global or more for USD/EUR customers?
- Can the reserve give a 100% backing if the value of libra rises above the value of the underlying reserve currencies?
- How will fees be kept small given the multiple currencies it can be converted from/into?
- What benefits will those in payments, such as Visa, Mastercard and Paypal gain?
- How can Central Banks regulate a global currency? What is within/out of their jurisdiction?
We don’t know everything yet and some of these questions may remain unanswered, but we think a debate among our community will offer different ideas and views. So we have scheduled a webinar, to be led by DFI’s 3 Founders: Gavin Krugel, Ignacio Mas and David Porteous, to provide space to share our thoughts. Gavin will lead a conversation on Implications for payment and payment systems and disruption, David will discuss what are regulation implications and requirements, and Ignacio will tackle whether this really will have an impact on financial inclusion.
Sign up for the webinar here – places are limited to 100 people so sign up quickly to avoid disappointment. The webinar will be recorded and posted afterwards for those who missed out on DFI’s webinar page.