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H AY L E Y
M C D O W E L L ]
Hayley’s
Comment
F
Facebook’s foray into finance
acebook has officially
made its move into the
financial world. News
of the social media
giant’s plans to estab-
lish a global digital currency and
financial infrastructure that aims
to “empower billions of people”
will have undoubtedly unnerved
some folk. With household names
like Uber, eBay, PayPal, Visa, Spo-
tify and MasterCard backing the
project (and not a single bank in
sight), Facebook’s foray poten-
tially signals another nail in the
coffin for the traditional banking
industry.
For investors, both retail and
institutional, that have embraced
the world of digital assets, Libra
has been touted as the means by
which cryptocurrencies could be
brought to the masses – 2.7 billion
people to be precise. Bitcoin’s
price surged to highs not seen in
over a year following Facebook’s
announcement, but questions
from central bankers, regula-
tors and other more traditional
financial institutions may have
98 // TheTrade // Summer 2019
cast some doubt on the potential
impact of Libra.
First and foremost, what is
Libra? Facebook’s whitepaper
on Libra states that the digital
currency will be built on a secure
blockchain, backed by a reserve
of assets, and governed by the
Libra Association, the network of
technology giants working along-
side Facebook. The assets backing
each Libra coin, according to the
whitepaper, will be a collection
of low-volatility assets including
bank deposits and government
securities, and the money for the
reserve will come from investors
in a separate investment token, as
well as the users of Libra.
So, Libra differs greatly from the
flagship cryptocurrency Bitcoin,
which has no reserve and is not
backed by any asset or curren-
cy (its value is derived from the
belief that it has value). With this
in mind, the Libra coin should
fall into another category – stable
coins or asset-backed tokens.
Alongside this uncertainty, ques-
tions have arisen as to where it
will sit in the current financial and
regulatory ecosystem, particularly
in Europe and the US. But Libra’s
launch could force regulators, who
have already expressed concerns
that Facebook’s coin might replace
fiat currencies, in turn instigat-
ing mass financial instability, to
seriously address the seemingly
unstoppable rise of digital cur-
rencies.
As for the traditional banks, as
most often is the case, they have
been left behind. If Libra takes off
without mass regulatory inter-
ference, what role does the bank
play in the future? One indicator
we can surely take from the Libra
proposal, developed by a network
of technology giants that have
already collectively succeeded in
changing the world we live in over
the past decade, is that cryptocur-
rencies are here to stay.
What are your thoughts on Libra? Tweet to Hayley - @hayley_mcdowell