Expectation Vs. Reality: Facebook’s Libra
“TechFin” hasn’t yet become a commonly discussed term in the mainstream media. The terminology, first coined by Alibaba’s Jack Ma, has a broad meaning, but essentially refers to the entry of Big Tech into the world of finance. Of course, things like Apple and Google Pay have been around for a while, but Ma is hinting at something deeper. In short, a world where Big Tech does not just facilitate the transactions of traditional financial institutions, but challenges and ultimately replaces those institutions.
A couple of months ago, Facebook blew the doors wide open on TechFin by announcing It was planning to enter the digital coin arena, with Libra Coin expected to launch in the first half of 2020. The announcement came after months of speculation, exciting investors and even having a knock-on effect to the price of Bitcoin. As a collaboration between huge corporations like Facebook, Uber, Vodafone, and Visa, Libra looks set to bring cryptocurrency into the mainstream; or so everyone thought.
Libra had been presented as Facebook’s project, but several corporations are backing the digital coin. Investors were excited to hear about how the digital currency would go beyond just being a token to use in Facebook’s Marketplace. Libra has been touted as a global digital currency, one that would have benefits like bringing the world’s ‘unbanked’ into financial inclusion.
Congress Pushed Back on Facebook
However, while the goals of Libra might sound noble, governments aren’t too enthused about the world’s biggest corporations wielding their own currency. President Trump was quick to pour cold water on the project: “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money….If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks..” Trump said in a tweet in mid-July. The project also faced a lot of scrutiny in Congress and from US Treasury Secretary Steve Mnuchin.
It’s understandable that lawmakers do not want corporations to have free rein in currencies, but there is also a growing understanding that the mainstreaming of cryptocurrency is inevitable. Remember, the coins are just one part of the technology, and there is usually a purpose for each coin: For example, Ripple is designed to make cross-border payments faster and easier; Ethereum is designed with smart contracts in mind.
The Project Still Has Massive Ambition
The reaction of Trump and other lawmakers to Libra did not exactly burst the balloon of the project, but it certainly quietened down some of the early excitement. Libra is not expected to have the same volatility as Bitcoin (it will be linked to low-volatility assets), but it will nevertheless be a popular investment. Much of that comes with Facebook’s association alone, of course. There has been a sense for years that Big Tech simply gets it right when it comes to these ventures, and investors like to jump on board early.
Yet, through all of this there is an overarching theme; namely, the worry about just how big Big Tech can become. From Brussels to Canberra to Washington DC, it has been mooted about breaking up the likes of Google, Amazon, and Facebook. It’s been a serious topic of debate on the campaign trail for the Democratic nomination for the 2020 US elections. Wielding the power of a globalized, decentralized currency might put that topic further on the list of governments’ priorities.
Libra is not the only example of TechFin, but it is certainly the most ambitious and prominent case. Lawmakers know the importance of tech giants to the global economy, so it’s not as if they want to stifle such projects. But one senses that legislators and tech firms will come to a head sooner that than later. Libra will undoubtedly be a success given the energy and financial commitment behind it, but it could operate in a financial world of different rules than what we see today.
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