Facebook plans to launch cryptocurrency
Facebook Inc revealed
plans on Tuesday to launch a cryptocurrency called Libra, the latest
development in its effort to expand beyond social networking and move into
e-commerce and global payments.
Facebook has linked with
28 partners in a Geneva-based entity called the Libra Association, which will
govern its new digital coin set to launch in the first half of 2020, according
to marketing materials and interviews with executives.
Facebook has also created
a subsidiary called Calibra, which will offer digital wallets to save, send and
spend Libras. Calibra will be connected to Facebook's messaging platforms
Messenger and WhatsApp, which already boast more than a billion users.
The Menlo Park,
California-based company has big aspirations for Libra, but consumer privacy
concerns or regulatory barriers may present significant hurdles.
Facebook hopes it will
not only power transactions between established consumers and businesses around
the globe, but offer unbanked consumers access to financial services for the
first time, according to Reuters.
The name
"Libra" was inspired by Roman weight measurements, the astrological
sign for justice and the French word for freedom, said David Marcus, a former
PayPal executive who heads the project for Facebook.
"Freedom, justice
and money, which is exactly what we're trying to do here," he said.
Facebook shares were the
most actively traded across US exchanges in pre-market trading, gaining 2.6 per
cent to $194.
Facebook also appears to
be betting it can squeeze revenue out of its messaging services through
transactions and payments, something already happening on Chinese social apps
like WeChat.
The Libra announcement
comes as Facebook grapples with public backlash due to a series of scandals,
and may face opposition from privacy advocates, consumer groups, regulators and
lawmakers.
Some Facebook adversaries
have called for the company to incur penalties, or be forcibly broken up, for
mishandling user data, allowing troubling material to appear on its site and
not preventing Russian interference in the 2016 presidential election through a
social media disinformation campaign.
It is not clear how
lawmakers or regulators will react to Facebook making a push into financial
services through the largely unregulated world of cryptocurrency.
In recent years,
cryptocurrency investors have lost hundreds of millions of dollars through
hacks, and the market has been plagued by accusations of money-laundering,
illegal drug sales and terrorist financing.
Markus Feber, a senior
German lawmaker in the European parliament, called for the European Union to
begin work on regulating cryptocurrencies.
"If Facebook will
expose its two billion users to the risks of virtual currencies, this would be
a good reason for the European Commission to start work on a proper regulatory
framework governing the rules of virtual currencies" he said in a
statement.
Facebook has engaged with
regulators in the United States and abroad about the planned cryptocurrency,
company executives said. They would not specify which regulators or whether the
company has applied for financial licenses anywhere.
Facebook hopes it can
bring global regulators to the table by publicising Libra, said Kevin Weil, who
runs product for the initiative.
"It gives us a basis
to go and have productive conversations with regulators around the world,"
he said. "We're eager to do that."
The Swiss financial
watchdog FINMA said it was in contact with the initiators of the Libra project.
It declined to comment on whether the project was in the process of obtaining
specific regulatory permission or status.
Britain's financial
regulator declined to comment. Other major regulators did not immediately
respond to requests for comment.
MAJOR PARTNERS
Bitcoin, the most
well-known cryptocurrency, was created in 2008 as a way for pseudonymous users
to transfer value online through encrypted digital ledgers. Early developers
believed that the world needed an alternative to traditional currencies, which
are controlled by governments and central banks.
Since then, thousands of
bitcoin alternatives have launched, and Facebook is just one of dozens of
blue-chip companies dabbling with the underlying technology. But its status as
a Silicon Valley behemoth that touches billions of people around the world has
created significant buzz around Libra's potential.
Partners in the project
include household names like Mastercard Inc, Visa Inc, Spotify Technology SA ,
PayPal Holdings Inc, eBay Inc, Uber Technologies Inc and Vodafone Group Plc, as
well as venture capital firms like Andreessen Horowitz.
They hope to have 100
members by Libra's launch during the first half of 2020. Each member gets one
vote on substantial decisions regarding the cryptocurrency network and firms
must invest at least $10 million to join. Facebook does not plan to maintain a
leadership role after 2019.
Though there are no banks
among the inaugural members, there have been discussions with a number of
lenders about joining, said Jorn Lambert, executive vice president for digital
solutions at Mastercard. They are waiting to see how regulators and consumers
respond to the project before deciding whether to join, he said.
Major European and US
investment banks did not immediately respond to requests for comment.
The Libra Association
plans to raise money through a private placement in the coming months,
according to a statement from the association.
PRIVACY, REGULATORY
CONCERNS
Although Libra backers
who spoke to Reuters or provided materials are hopeful about its prospects,
some said they were aware that consumer privacy concerns or regulatory barriers
may prevent the project from succeeding.
Calibra will conduct
compliance checks on customers who want to use Libra, using verification and
anti-fraud processes that are common among banks, Facebook said.
The subsidiary will only
share customer data with Facebook or external parties if it has consent, or in
"limited cases" where it is necessary, Facebook said. That could
include for law enforcement, public safety or general system functionality.
Transactions will cost
individuals less than merchants, Facebook said, though executives declined to
provide specifics. Each Libra will be backed by a basket of government-backed
assets.
The company plans to
refund customers who lose money because of fraud, Facebook said.
Sri Shivananda, Paypal's
chief technology officer said the project was still in its "very, very
early days".
Mastercard's Lambert
characterised Libra similarly, noting much needed to happen before the launch.
If the project receives too much regulatory pushback, he said, "we
might not launch."
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