Libra attempts to placate everyone else

Facebook’s Libra cryptocurrency has received almost universal push-back since its announcement, so now it’s looking for ways to placate its critics.

To say Libra has had a difficult start would be an understatement. Financial regulators in the US and Europe almost immediately sounded the alarm about the prospect of a new cryptocurrency controlled by one of the world’s dominant digital platforms. They were joined by many other concerned voices in both the public and private sectors and by last week it had lost its biggest allies in the electronic payments world.

This was far from an ideal background to the first formal meeting of the Libra Association, which gathered in Geneva last week, but on the plus side at least it sorted the wheat from the chaff among its initial backers. In the event 21 founding members decided to stick around and sign the Libra Association charter, which is definitely better than nothing.

In a subsequent banking seminar Libra project lead David Marcus told the assembled bankers that Libra was open to looking at a bunch of different options for what form it would take, suggesting they might make it a stablecoin pegged to a bunch of existing fiat currencies, rather than a true cryptocurrency like Bitcoin, that would be subject to similar volatility in value.

That’s being positioned as some kind of major concession to meet regulators half way, but from day one Libra was positioned as a stablecoin, so it’s not obvious how much has changed. The transnational Financial Action Task Force recently has a meeting about stablecoin an seems to be pretty nervous about even that, so it looks like Libra has a lot of obstacles to overcome before it can expect to start winning round its many critics.

Libra partners stampede for the exit

Visa and Mastercard are among a group of partners in Facebook’s Libra cryptocurrency venture to decide the whole thing is too risky.

It has been widely reported that internet payment platform Stripe and consumer trading site eBay have also bailed on the project, following PayPal’s decision to step away last week. The general theme of the reasons they give for pulling out is that they still like the concept, but the regulatory heat they’ve all been getting the project was unveiled is just too rich for their blood.

A couple of other factors, on top of the precedent set by PayPal, seem to have influenced the timing of the decision. The Verge reports that Visa, Mastercard and Stripe all got letters from a couple of US Senators last week, warning them of severe regulatory con sequences if they continue with Libra. In addition there’s a Libra meeting today, in which partners are supposed to formalise their commitment to the project, they were compelled to make a choice one way or the other in advance of it.

“Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company,” said the most ominous part of the letters. “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.”

Having the two dominant global financial services providers pull out is obviously pretty bad news for Libra. It now faces the task of convincing them the threatened regulatory Armageddon won’t come to pass, which won’t be easy. David Marcus, one of the founders of the project, attempted damage limitation on Twitter, but all eyes will be on the outcome of today’s meeting.

 

Facebook’s Libra cryptocurrency coalition starts to crumble

Internet financial services giant PayPal is the first member of the Libra coalition to jump ship and probably won’t be the last.

When Facebook announced its audacious cryptocurrency ambitions earlier this year it derived a lot of its legitimacy from persuading a bunch of major financial services providers to formally back the project. Within days, however, regulatory authorities around the world expressed major concerns about the project and indicated they were unlikely to let it go ahead. Stories later emerged of some of the partners getting nervous about the amount of regulatory heat the project was getting.

Now this first of them has formally bailed on the whole thing, with PayPal notifying US media that it has decided to forgo further participation in the Libra Association before muttering about focusing on the day job. It also slightly hedged its position by saying it still thinks Libra is a great idea and it still wants to be friends with Facebook.

If the Libra Association’s response is anything to go by, PayPal’s hopes that Facebook won’t take this personally seem forlorn. The statement it provided to media started by opining that it takes guts to be involved in such an ambitious project and concluded by indicating that it’s pleased to be rid of any wimpy companies that can’t handle a little bit of adversity as early as possible.

That’s a good dig, but Libra should be careful what it wishes for. The coalition is a very loose one, with the members only having gone so far as to back the idea in principle, without committing to anything more substantial, so it’s very easy to bail out at this stage. Having said that, what did the participants expect when they announced their intention to create a new global currency? Of course there was going to be resistance and PayPal looks, at the very least, naïve for losing its nerve so quickly.

France rediscovers the importance of sovereignty in response to Facebook’s cryptocurrency

The French Finance Minister has said he will block Facebook’s plans to launch a global cryptocurrency, citing its threat to monetary sovereignty.

Followers of the Brexit debate in Europe may be surprised to hear France suddenly leaping to the defence of national sovereignty since it’s among the keenest for a federalised European Union, in which nation states are entirely subservient to a trans-continental authority. But it looks like there is at least some residual national pride left among French politicians, it just takes the ambitions of US tech giants to awaken it.

Speaking at an OECD conference on virtual currencies, Bruno Le Maire said “I want to be absolutely clear: in these conditions, we cannot authorise the development of Libra on European soil,” according to AFP. “The monetary sovereignty of countries is at stake from a possible privatisation of money … by a sole actor with more than 2 billion users on the planet.”

Facebook announced its masterplan to revolutionise the global currency system back in June and was immediately met with startled resistance by various governments, including the US, which had assumed currency was their thing. Plenty of other people also expressed alarm at the prospect of a company with many question marks hanging over it suddenly deciding to reinvent money, and it was never likely that a continent that had only recently invented its own currency would tolerate the imposition of another.

It’s hard to see how Facebook will be able to persuade national governments to accept this threat to their currencies, even if they are supranational ones. The fact that France is being especially vocal on the matter is a great illustration of how subjective the matter of sovereignty is. When your opponents want greater independence they’re parochial, isolationist and xenophobic, but when your own interests are threatened, sovereignty becomes a matter of utmost importance.

Libra backers getting twitchy as regulators get probey

Like cockroaches scattering from the light, bankers are reportedly high-tailing it away from Facebook’s venture into cryptocurrency.

Some might have been excited by the prospect of working with one of the worlds’ most recognisable companies in an exciting new sector, blending traditional banking with the innovation of technology, but it now appears the Facebook brand is toxic. So toxic, not even bankers will get involved.

According to the Financial Times, three of the early backers of Facebook’s potential cryptocurrency are attempting to put daylight between themselves and the social media giant. Regulatory scrutiny and public criticism seems to be hitting levels which are intolerable for an industry which is not usually afraid to get its hands dirty in the pursuit of profit.

“I think it’s going to be difficult for partners who want to be seen as in compliance [with financial regulators] to be out there supporting [Facebook and Libra],” one of the backers said anonymously.

Another suggested more conversations should have been had with the relevant authorities and regulators before Facebook pushed forward. The social media giant has seemingly attempted to enter the financial world without thinking the strategy through or understanding there might be reservations with a company where the recent record for data protection and privacy is somewhat tarnished (putting it kindly).

This appears to be one of the problems which Facebook is facing. Because it allegedly did not have conversations with financial regulators prior to making an announcement, it has been facing backlash ever since.

Looking at the regulatory scrutiny being placed on the initiative, the list is almost growing by the day.

The UK’s Information Commissioner’s Office joined the list earlier in August, asking how customers’ personal data will be processed in line with data protection laws. Switzerland’s data privacy regulator asked for information from Facebook after it was told by the social media giant it had been chosen as the body to keep a steady eye on Libra compliance. Others to request information include regulators from Australia, the USA, Canada, Burkina Faso and Albania.

Earlier this week, Bloomberg suggested the European Commission was also weighing into the debate. The antitrust team are allegedly concerned the Libra currency could shut out rivals and create competition restrictions regarding the use of data. This investigation will also look into the integration of Libra into Facebook’s WhatsApp and Messenger services.

Like many other regulators and governments around the world, the financial bodies here want reassurances Facebook is able to act responsibly and in accordance with the law. Unfortunately, as there are few laws to govern the existing cryptocurrency segment, this might be harder than most would assume.

Facebook has a tarnished reputation at the moment, and the number of people who are looking sceptically at CEO Mark Zuckerberg is increasing. As Facebook looks to enter one of the most sensitive and trusted industries around, this is not an ideal position.

49% of US and UK would not trust Facebook for cryptocurrency

Not many people understand the complexities of cryptocurrency and an alarming number of people don’t trust Facebook; it seems combining the two is not a well-received idea.

New research from messaging app Viber has suggested 49% of consumers in the UK and US would not trust the social media giant when it comes to cryptocurrency. Facebook might want to get a foothold in this embryonic segment of the technology industry, however if consumers have lost trust in the firm, you have to wonder whether this will kill the potential of cryptocurrency through association.

There are two interesting areas concerning Facebook’s drive towards cryptocurrency. Firstly, many people will start asking what cryptocurrency actually is and what it does. And secondly, when talking about money, many will start to question whether Facebook should be considered a trusted partner with its track record.

Starting with the definition of cryptocurrency, we will not pretend to be an expert on the segment and few in the general public will have a concrete grasp either. This lack of understanding creates uneasiness and a lack of trust, while the fact it is largely unregulated simply compounds this sense of nervousness.

This environment of confusion also seems to filter upwards towards governments and regulators; no-one has seemed to want to take ownership and when it was suggested the Swiss would take the lead, the Swiss regulator seemed very confused.

We’ve already seen the complications the world faces when a void in the regulatory landscape is formed and it does seem cryptocurrency is heading the same direction. Talking about the issues which arise during a regulatory void, this leads us onto the second interesting point brought forward in this research.

In the UK, 49% of consumers has suggested they would not trust Facebook at all when it comes to keeping information secure through its new cryptocurrency service Libra. Only 4% said they would trust Facebook, while 28% have not made their mind up. The numbers were remarkably similar for consumers in the US, however even less, 2.5%, explicitly stated they would trust Facebook.

Over the last 12-18 months, Facebook has destroyed any credibility the consumer had in it and has done little to earn it back. Cambridge Analytica has a disaster for Facebook though Facebook’s response to investigations and leaked memos since have further fuelled the distaste felt by the consumer towards the social media giant. Largely, the fallout from this saga is in the past, but the damage to Facebook’s reputation has been dealt.

Dealing with personal information is one thing but managing transactions and handling financial data is a completely different ask. Facebook is asking for a lot of trust and credit with the launch of Libra. As mentioned before, if Facebook is attempting to be the poster-boy to take the concept of cryptocurrency to the masses, let’s hope its reputation does not pollute a potentially very exciting segment.

Switzerland surprised to hear it will be regulating Facebook’s cryptocurrency

In a testimony before the US Senate Facebook indicated its Libra cryptocurrency will run from Switzerland, but it forgot to ask the Swiss if that was OK.

David Marcus, who is heading up Libra on Facebook’s behalf, testified before the US Senate Banking Committee in response to profound alarm from US lawmakers at the prospect of the social media giant developing its own currency. According to CNBC he said the data and privacy regulation of the currency will be overseen by a Swiss agency, as that’s where Libra will be based, but they say that’s the first they’ve heard of it.

In his testimony, which you can watch in full here if that’s your thing, Marcus said the Swiss Federal Data Protection and Information Commissioner (FDPIC) will keep an eye on the data protection side of things, which must have only offered partial reassurance to US senators worried their citizens were vulnerable to having their data exploited yet again.

Imagine their horror, then, when they read the CNBC report and learned that Facebook and its Libra pals haven’t even made contact with the FDPIC yet. This failing, later confirmed by Facebook itself, it just the latest slip-up in what has been a frankly shambolic launch. You’d think Facebook would have dotted every ‘i’ and crossed every ‘t’ before unveiling a grand plan to revolutionise the global banking system and its failure to even check in with one of the proposed regulators it just embarrassing.

As TechCrunch notes, the data privacy side of all this is arguably the greatest concern as there will apparently be little control over developers that use the platform. Given the negative consequences of a fairly minor misuse of Facebook user data by Cambridge Analytica it’s baffling to see Facebook be so cavalier about this. The likelihood of Libra ever being set free is, on balance, increasingly small.

US lawmakers formally demand a halt to Facebook’s Libra cryptocurrency

As threatened a couple of weeks ago, the House Financial Services Committee has called for Facebook to halt its cryptocurrency plans.

The demand came in the form of a letter signed by the Chairwoman of the Committee Maxine Walters and a few other members of the House of Representatives that share her concerns. The letter was addressed to CEO Mark Zuckerberg, COO Sheryl Sandberg and CEO of Calibra, the company Facebook created to exploit the Libra opportunity, David Marcus.

“We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet,” opened the letter. “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”

The letter went on to detail quite how worrisome this disruption to the established way of things is and how little Facebook has done so far to allay these worries. The main concern seems to be similar to that attached to all cryptocurrency, that it will provide liquidity to ‘bad actors’. The difficulty of the US poking its nose into an organization based in Switzerland seems to be the main national security concern. They also spend a paragraph reviewing Facebook’s dodgy privacy track record.

“Because Facebook is already in the hands of a over quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” concludes the letter. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”

Facebook and its partners must have anticipated this kind of reaction when they made their announcement. The Libra project is so grand in its scope and ambition they couldn’t possibly have expected authorities to adopt a laissez faire attitude, even if Facebook had a spotless reputation. It’s also hard to see how Facebook can do anything other than comply with the request and prepare itself for an exhaustive oversight process. Don’t expect to see Libra in the wild anytime soon.

US politicians alarmed by Facebook’s cryptocurrency masterplan

The announcement of a new currency led by Facebook has caught the attention of US law-makers and not in a good way.

The Chairwoman of the House Financial Services Committee, Maxine Waters, is alarmed by the prospect of a massive company with a patchy track record when it comes to data protection and censorship having control of a global currency. She published the following statement on the matter soon after the unveiling of Libra.

“Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data,” said Waters. “It has also exposed Americans to malicious and fake accounts from bad actors, including Russian intelligence and transnational traffickers. Facebook has also been fined large sums and remains under a FTC consent order for deceiving consumers and failing to keep consumer data private, and has also been sued by the government for violating fair housing laws on its advertising platform.

“With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users. The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy. Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies.

“Given the company’s troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action. Facebook executives should also come before the Committee to provide testimony on these issues.”

Waters isn’t the only representative to express concern and at least one Senator has joined the party, as you can see in the tweet below. Regulators are going through a period of realising they were very slow to acknowledge the magnitude of social media and they should be keen to show they’ll be less complacent about money than they were information. It seems likely that Facebook will have to jump through a lot more hoops to launch this product than it has had to previously.

Facebook leads corporate cryptocurrency initiative Libra

Social media giant Facebook has announced the launch of Libra, a ‘stablecoin’ apparently designed to revolutionise the digital payments market.

Such ambition would be highly questionable if it weren’t for the fact that Facebook has managed to get loads of other blue-chip companies involved, including Visa, Mastercard, PayPal and Coinbase. This gives the project a sense of scale and legitimacy that it wouldn’t have if this was just another gimmick to help Facebook exploit its users once more.

“Libra’s mission is to create a simple global financial infrastructure that empowers billions of people around the world,” blogged Facebook CEO Mark Zuckerberg. It’s powered by blockchain technology and the plan is to launch it in 2020. This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone.”

Blockchain is a pretty complicated business, so to get how this works we recommend you go to the Libra site, read the Libra white paper and watch the videos below. Libra is described as a ‘stablecoin’, which means its value is pegged to regular currencies and thus won’t fluctuate like Bitcoin famously does. There’s also talk of almost no fees, so it will be interesting to see what incentive all the members of the Libra consortium have to participate.

Facebook’s own interests will be represented by a subsidiary called Colibra, which will produce a digital wallet that will be available in Facebook’s messaging apps as well as its own standalone one. “From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost,” said the announcement. “And, in time, we hope to offer additional services for people and businesses.”

This seems like a very ambitious project, the motives for which are still somewhat unclear. The narrative is all about extending financial services to the unbanked, but you have to assume Facebook expects to monetise this service eventually. The prospect of a company that unilaterally excludes any users it disapproves of being in control of a global currency is chilling.