Libra was formally announced on June 18, 2019, a month later, Facebook announced the currency will not launch until all regulatory concerns have been met and Libra has the “appropriate approvals”.
This is causing them some problems already as a number of the major payment firms have quit the project. Mastercard, eBay, Visa, Mercado Pago and fintech startup Stripe have gotten cold feet regarding the future of Libra and have backed out. The move followed “warnings from politicians and regulators, from the United States to Europe, that Libra risked upsetting global financial stability, undermining users’ privacy and facilitating money laundering”.
PayPal did not attend a meeting of Libra backers earlier this month and their spokesperson said that they had officially left the association. “We remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future. Facebook has been a longstanding and valued strategic partner to PayPal, and we will continue to partner with and support Facebook in various capacities”.
Members attended a meeting in Geneva and agreed “interim articles of association”. These are the rules and regulations of a company, relating to the internal working or management of the company. According to a Libra press release, the “21 initial members of the Libra Association formally signed onto the Libra Association charter, formalized the Libra Association council, elected the Board of Directors, and appointed members of the Libra Association executive team”.
Eyebrows have been raised because of the roles Facebook executives have taken. Facebook’s David Marcus, who took charge of Libra is on the board, as is Katie Haun, a general partner at Andreessen Horowitz, who were early investors in Facebook.
Another board member, Kiva’s Matthew Davie also has ties to Facebook. The others are Wences Casares and Patrick Ellis.
However, regardless of where Libra takes us, or doesn’t, at least we know who is sitting on the board.The owner of Priceline, Kayak and Booking.com confirmed that it had pulled out of the group. Ride hailing firms Uber and Lyft are still involved, as are other venture capital groups, blockchain companies and non-profit organizations. The exodus of big financial firms means new problems for Libra as it will not be able to rely on global players to facilitate transactions.
According to a report by the BBC, a report by the G7 taskforce group has said that the cryptocurrency must not go ahead until the firm proves that it is safe and secure. The report says backers of digital currencies like Libra must be “legally sound, protect consumers and ensure coins are not used to launder money or fund terrorism”. Libra was not singled out, but the report stated that “global stablecoins with the potential to scale rapidly” pose a range of conceivable issues.
Each member of the Libra Association has the right to vote on substantial decisions concerning the cryptocurrency network, and companies must invest at least US $10M dollars to join. This forms part of the Libra Reserve, which was created to preserve the value of the Libra currency.
Each Libra coin will be backed by a collection of stable assets held in the reserve, the rest of the money in the reserve will come from the users of Libra. The association will pay incentives in Libra coin to its founding members to “encourage adoption by users, merchants, and developers”.
On the user side, their website says that for new Libra coins to be created, “there must be an equivalent purchase of Libra for fiat and transfer of that fiat to the reserve”. The reserve will expand as users’ demand for Libra increases.
The U.S. Department of the Treasury Secretary, Steven Mnuchin, said in an interview with CNBC that he has met with “representatives of Libra multiple times.”
He added that during those meetings, he has made it clear that the U.S. government “would take enforcement actions against them,” if Libra and its participants “don’t meet our money laundering standards and the standards that we have at FinCEN.”
“And I think they realized that they’re not ready, they’re not up to par. And I assume some of the partners got concerned and dropped out until they meet those standards,” Mnuchin added.
The Bank of England has finalized a set of principles the Facebook-led Libra cryptocurrency project must adopt before going live in the UK. The BoE’s Financial Policy Committee released the October Financial Policy and Summary Report which stated that such a system would need to “meet the highest standards of resilience and be subject to appropriate supervisory oversight”. They have also said that they require access to be “able to monitor payment chain information” and, in light of the published principles, called on regulators to use “their powers accordingly”
“The resilience of the proposed Libra system would rely on the stability of not just the core elements of the Libra Association and Libra Reserve but also the associated critical activities conducted by other firms in the Libra ecosystem such as validators, exchanges or wallet providers. This emphasised the need to ensure end-to-end resilience.
And the EU Commission’s finance minister nominee, Olaf Scholz, has said the EU would create a regulatory framework for the payment network under his tenure.
The mounting criticism from politicians and financial regulators around the world includes Maxine Waters, Chairperson of the United States House Committee on Financial Services asLibra’s mission, which is to “enable a simple global currency and financial infrastructure that empowers billions of people”, is facing some difficulties. Facebook CEO Mark Zuckerberg said that with permissioned blockchain technology, they “want to make it easy for everyone to send and receive money just like with our apps to instantly share messages and photos”.
When Facebook’s Libra Coin was first touted, 28 partners announced their interest and participation in the project which is to be launched in the first half of 2020. Managed by the Libra Association, an independent non-profit organization based in Geneva, the Libra whitepaper states that they hope to have “approximately 100 members of the Libra Association by the target launch”.
king Facebook to halt the development and launch of Libra, citing a list of recent scandals and that “the cryptocurrency market currently lacks a clear regulatory framework”.
Mark Zuckerberg was thoroughly questioned about the project on Capitol Hill on the 23rd. Coinbase CEO, Brian Armstrong has said that the US response to Facebook’s cryptocurrency was “ridiculous”.
“The way for countries to remain relevant over the long term and continue to have high economic growth is to invest in science, technology, and innovation. If the government can help here, even better. But first it needs to do no harm”.
It’s not looking great for Libra. Analysts at MoffettNathanson, considered the standard bearers for media and communications research, have been quoted as saying:
“We believe Libra will fail without the involvement of the major payments players, as they bring essential, deep payments expertise, trusted payments brands, global acceptance and settlement networks, and relationships with every major financial institution, government, and regulatory body around the world”.
But Dante Disparte, responsible for Libra Association’s policy and communications said: “Although the makeup of the association members may grow and change over time, the design principle of Libra’s governance and technology, along with the open nature of this project ensures the Libra payment network will remain resilient”.