Facebook’s Libra project will forge ahead regardless of the cracks that are emerging even before it has seen the light of the day.
So say industry players, as key partners to the project are abandoning the Libra Association – the entity managing the Facebook-led effort to build a global digital currency.
In June, Facebook shared plans for Calibra, a newly-formed Facebook subsidiary, whose goal is to provide financial services that will let people access and participate in the Libra network.
The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app, and Facebook expects to launch it next year.
The group behind the crypto-currency is the Libra Association, which had 29 founding members, including some big names like Visa, MasterCard, Uber, Lyft, eBay and Spotify.
However, so far, seven members of the association have jumped ship from the grouping.
In a blow to the Libra Association, one of the key members PayPal last week said it would forgo any further participation in the group and would instead focus on its own core businesses. It became the first member to ditch the project.
Ever since, more partners have joined the fray in quitting the association. These include Visa, MasterCard, Stripe, Mercado Pago, eBay and Booking Holdings, meaning a quarter of the associates have departed.
Additional scrutiny
Regardless of these problems, Eugéne Etsebeth, iCE3X’s COO, believes the Facebook crypto-currency project will still go ahead.
“There are over 1 500 entities waiting in the wings to replace the departing entities that include Visa, PayPal, MasterCard and others. I believe that Facebook will launch the project in specific jurisdictions at first,” says Etsebeth.
He points out key partners are pulling out because of intensified regulatory pressures. “Policy-makers and politicians have even made veiled threats of additional scrutiny of their existing business models if they continue with the project.”
Etsebeth notes that regulators and bankers in SA are watching these developments closely.
“Fintech start-ups will always be quickest to react to any opportunities to unsettle incumbents in the payments industry. Users are waiting to see how this will change their lives, if at all.”
Farzam Ehsani, co-founder of local crypto exchange VALR, comments that Facebook’s crypto-currency initiative is being perceived by regulators as a threat to the sovereignty of national currency and this threat has caused regulators to scrutinise both the initiative as well as the institutions backing the initiative.
He is of the view that it will be very difficult for Facebook to pull off this current version of the Libra project given all the resistance it is facing from many governments around the world.
“In recent days, we’ve seen some major players such as Visa, MasterCard and eBay withdraw from the Libra Association under what can only really be described as threatening correspondence from the authorities.
“In one instance, a former backer of the project was warned by members of government that if they continued to support the project they should ‘expect a high level of scrutiny from regulators not only on Libra-related payment activities, but in all payment activities’.
“Many companies seem to be pulling out because the risks to their current businesses likely outweigh the expected payoff of being part of the Libra Association at this stage,” Ehsani says.
Gaining ground
For Nic Haralambous, co-founder of Coindirect, it’s important to understand that Libra was incubated by Facebook but is not controlled by Facebook, according to Libra insiders and stakeholders.
“Facebook holds one out of five board seats and is only one of 21 founding members of the project. Libra, or the next iteration of the project, is likely to gain ground if for no other reason than the stakeholders’ combined influence over the people on our planet.
“The Libra project, more than anything else, is a positive reflection on the existence and growth of Bitcoin. Founding members are likely pulling out of the Libra project because of the regulatory nightmare that will emerge in the next few years. Bitcoin is beholden to no government, regulation or centralised body that could decide its fate.”
Haralambous points out that South Africans broadly aren’t very aware about Libra in its current form but if Libra ever gets off the ground, it's going to be baked into the biggest communication platforms in the world (Facebook, WhatsApp, Instagram, etc).
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