Where does Libra stand three months later?

29 September, 2019

At the time of this writing, it has been about three months since Facebook announced plans for its Libra and Calibra projects. Their announcement was met with much fanfare, followed by quite a bit of critical scrutiny. Shortly thereafter, a Facebook SEC filing hinted that Libra might never get off the ground. So where are we now?

Three months is more than sufficient time for both supporters and critics to absorb all the finer points of Facebook's Libra white paper. Blog posts and articles from both sides of the debate have been flowing liberally for the last several months. Still, we do not really know Libra's future. We know what Facebook says, but we also know of the regulatory hurdles the social media giant is up against.

This post will discuss the little bit we know as of today. It will also discuss some of the speculation surrounding Libra's future. What you do with this information is entirely up to you. However, remember that we still do not have a clear picture. Libra could turn out to be everything Facebook dreamed it to be. It could look entirely different. And, as Facebook stated in their SEC filing, it may come to nothing at all.

The Libra Association and its members

We will start by talking about the quasi-independent Libra Association and its 28 founding members. Those members include big-name corporations like Visa, MasterCard, Uber, Spotify, and PayPal. What do we know about the Association and its members?

First, we know that none of the members have entered into legally binding contracts to date. Agreeing to membership involved nothing more than making a nonbinding commitment. It is likely that none of the members will take the formal step of entering into a binding contract until they are positive Libra will be successful.

We also know that members have agreed to commit $10 million each to the project. It is not clear whether or not those fees have been paid. If so, it will be interesting to see what happens should any Association members decide to pull out. Will they get their money back?

Finally, we also know that the Association is not yet fully independent. It will not be so for at least several years. In the meantime, Facebook will exercise at least some control over how the Association does business. That raises concerns of Libra's decentralization, something that has been a huge question since the white paper was released.

Lots of work to be done

Some of the founding members of the Association have raised concerns of Libra's future. PayPal is one such member. According to CoinTelegraph, PayPal management is cautiously optimistic about the project. PayPal vice president of investor relations Gabrielle Rabinovitch apparently told French news media that "there's a lot of work to happen before we get to the point where it becomes something more than just a very exciting idea."

Rabinovitch's statement is quite telling. The fact that she referred to Libra as "a very exciting idea" and nothing more suggests that PayPal is not yet convinced Libra is viable as a privately owned stablecoin. If so, she is not alone.

A variety of government leaders, banking officials, and media pundits have made a point of questioning Libra's viability over the last three months. With every new piece comes several more reasons why Libra might not succeed. From insufficient resources to strong government resistance, there are plenty of factors that could derail the project before its expected launch in 2020.

For their part, the Libra Association continues to maintain that the coin will be ready to go by the middle of next year. PayPal is not convinced. They say a lot of work still needs to be done. Whether or not PayPal sees it through to the end is anyone's guess.

Libra's primary goals

Among the few things we know about Libra are the project's stated goals. Rabinovitch reiterated them in speaking with the French press. She also made a point of saying PayPal shares those goals. What are they? Rabinovitch named two specifically:

  • Serving the Underserved - We take this to mean giving access to a monetary system among people groups whose current access is limited. The underbanked and completely unbanked immediately come to mind. Countries with worthless fiat are also in play here.
  • Democratizing Access to Capital - This lofty goal is one of leveling the playing field between the haves and have-nots. It is the more difficult of the two for the very simple reason that Facebook will not be giving Libra away for free. Users will still need a means to purchase it, which doesn't really help the have-nots.

Libra is seen, for all intents and purposes, as a means of providing universal access to a digital monetary system regardless of where a person lives. It is as much a social justice platform as a monetary one. However, do not fall for the idea that Facebook wants to launch Libra out of the goodness of its corporate heart.

Facebook is a corporation whose first and only goal is to make money for investors. So while Libra may offer some social benefits, the primary purpose here is to generate revenue. If world governments do not stop Facebook from moving forward, rest assured Facebook will find a way to turn Libra into a cash cow.

Mounting regulatory resistance

We also know full well that governments around the world have not taken kindly to Facebook's announcement. They have known for years that the company was looking to get into financial services, so it was just a matter of time before they had something they could finally attack. Libra is that something.

Within days of the initial announcement, U.S. legislators began holding hearings. It appears they have every intention to block Libra in the United States until the Securities and Exchange Commission (SEC) figures out an effective way to regulate it. Based on how slow government wheels turn in the U.S., it could be years before the SEC is satisfied.

Government leaders in Europe are equally skeptical. CoinTelegraph reports that Facebook representatives met with members of the Bank of International Settlements (BIS) Committee on Payments and Market Infrastructure (CPMI) in mid-September (2019. The point of that meeting was to address the banking sector's concerns and simultaneously challenge Facebook to address them with real solutions.

Even before the BIS meeting in Switzerland, European officials were voicing their displeasure. French finance Minister Bruno Lemaire made it clear that his country will do everything it can to prevent Libra from being developed in Europe. Shortly thereafter, Germany's parliament said it would challenge Libra as well.

A public digital currency

Finally, we know that Europe's objection to Libra rides mainly on its insistence that they will eventually produce a public digital currency. Germany's parliament said as much in voicing their objections to Libra. Their proposal is backed by officials from the European Central Bank (ECB).

News reports suggest that the ECB has plans to launch its own stablecoin sooner rather than later. ECB executive Benoit Coeure allegedly encouraged EU finance ministers during a September 13 meeting to "step up our thinking on a central bank digital currency." He went on to say that the ECB is currently working on a digital currency project.

Rumor has it that the ECB wants to launch its stablecoin ahead of Libra. Whether or not that plan comes to fruition remains to be seen. Regardless of the timeline though, an ECB stablecoin will either prevent Libra from being developed in Europe or directly challenge it as the favored cryptocurrency there.

What it all means

Though this post might make it seem as though we know a lot about Libra, we really do not. All we know are generalities relating to Facebook's goals and regulatory resistance to them. We don't know much about the nuts and bolts of how Libra will actually work. That leaves us wondering what it all means to the average cryptocurrency user.

If you are a typical Bitcoin user, there is no need to panic. Bitcoin is the most widely accepted cryptocurrency on the planet. It has the longest history, enjoys the best reputation, and sets the standard by which all other cryptos are judged. And even though Facebook may have an infrastructure advantage, the fact that their coin is a stablecoin puts Libra on an entirely different plane.

Regular readers of our blog posts understand that stablecoins are not in the same category as traditional cryptocurrencies. For starters, stablecoins are backed by one or more assets that protect them against price volatility. That alone is a substantial difference.

Second, linking a stablecoin to other assets makes it exceedingly difficult for the coin to be fully decentralized. You can decentralize governance all day long but linking a stablecoin to another asset always allows the other asset and those who control it undue influence over the stablecoin.

There are fears that a successful Libra could destabilize world financial markets. That seems unlikely, though it is possible. Regardless, traditional cryptocurrencies like Bitcoin and Ether should do just fine in the Libra era. As Gabrielle Rabinovitch put it, Facebook still has a lot of work to do just to get Libra off the ground.