Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | Facebook, Inc. (NASDAQ: FB; LSE: 0QZI; DB: FB2A), who is attempting to use major corporate partners to quickly advance its global cryptocurrency, Libra, is having partner problems. Only one week after PayPal announced cutting ties from Libra, several other partners from the 27 companies in the Libra Association including Ebay, Visa, Marcado Pago, Mastercard, and Stripe announced this week that they would also stop supporting Facebook’s Libra project.
Libra is a digital cryptocurrency on a blockchain ledger and considered a “stable coin”, as a basket of fiat currencies, bank deposits and short-term government securities will pegged its value. The vision of Libra is to create a global digital currency that is easily accessible and affordable to those who do not have access to traditional financial institutions. The World Bank estimates that 31% of the global adult population (1.7 billion people) remains unbanked without access to an account at a financial institution or to mobile money.
In June, Facebook (NASDAQ:FB) officially unveiled their white paper for Libra, managed by the newly formed, non-for-profit collaborative called the Libra Association. In addition to Libra, Facebook plans to create a separate subsidiary called Calibra for the development of a digital wallet that holds and manages transactions for Libra.
U.S. House Committee on Financial Services
A month after the release of the whitepaper, the U.S. House Committee on Financial Services sent a letter to Mark Zuckerberg requesting that Facebook and its partners immediately agree to stop progress on Libra.
The Committee’s concerns included:
- these products may lend themselves to an entirely new global financial system based out of Switzerland, which could rival the U.S. dollar and affect U.S. monetary policy;
- due to the recent events with Facebook and Cambridge Analytica, it raises concerns about privacy, trading risk and national security for FB’s over 2 billion users and other participants in the global economy;
- according to the U.S. House Committee, the current information about Libra is “scant” and lacks proper information security for potential products & services, and, regulation & oversight, which could pose a threat to U.S. and global financial stability.
CEO Mark Zuckerberg will be testifying before the House Financial Services Committee next week.
G-7 Countries
This week, the G-7 countries, which includes the world’s largest economies, also sent Facebook a warning message regarding the Libra project as they worry that with Facebook’s 2 billion users, a new currency may bring serious implications to competition and antitrust policies. The G-7 stated that a legal framework was a non-negotiable condition for “stablecoin” cryptocurrencies such as Libra, which are backed by other reserve assets.
China
In Asia, even though China banned cryptocurrency transactions in the nation two years ago, the country recently announced that it would be developing its own national cryptocurrency to prepare for potential competition from sovereign currencies such as Libra, and to have better oversight over where money is spent and transacted within the country.
As the number of founders in the Libra Association dwindle down to 21, companies that were once excited to collaborate on developing and supporting the disruptive new currency are now taking a cautious step back as they do not want to risk any legal liabilities.
Nevertheless, Facebook is still fighting strong for their Libra cryptocurrency. It will be interesting to see how CEO Mark Zuckerberg does in front of the House Financial Services Committee next week.
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Facebook, Inc. (NASDAQ: FB; LSE: 0QZI; DB: FB2A)
- newroom.fb.com
- Headquartered in California, United States, Facebook is a social media and social networking company that utilizes its online platform for advertisements and data aggregation.
- FB currently trades at US$185.85 per share with a market capitalization of US$530.2 billion.
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