Home Views Cryptocurrency

Development of Facebook's Libra expedited amid Covid-19

Emir Hrnjic
Emir Hrnjic6/12/2020 07:00 AM GMT+08  • 5 min read
Development of Facebook's Libra expedited amid Covid-19
Amid the Covid-19 pandemic, experts have warned that the virus could spread via physical money as the monetary notes and coins may carry viruses and up to 3,000 types of bacteria. In March, the World Health Organization confirmed that banknotes
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

(June 12): Amid the Covid-19 pandemic, experts have warned that the virus could spread via physical money as the monetary notes and coins may carry viruses and up to 3,000 types of bacteria. In March, the World Health Organization confirmed that banknotes may carry the coronavirus for several days and recommended the use of e-payments to mitigate the risk of contagion.

Moreover, the widespread national lockdowns have highlighted the need for people to transact from the comfort of their own home. Thus, a heightened virus awareness and a more urgent need for contactless payments might have expedited the development of the digital currency of Facebook, Libra.

Libra’s development was further highlighted by the pilot launch of the digital yuan in four cities across China. Even though the digital yuan may not be a direct competitor to private digital currencies such as Libra, its upcoming rollout threatens to affect Libra’s potential market.

More recently, Libra made the headlines again as Singapore’s sovereign wealth fund Temasek joined Libra Association and became its first Asia-based member as well as the first member with state backing. After the departure of several prominent members such as Visa, MasterCard and PayPal, Temasek’s backing breathed new life into the digital currency.

Regulatory issues

On May 7, the Libra Association appointed Stuart Levey, former chief legal officer of HSBC, as its first CEO. The hiring of a legal expert to run the digital currency clearly signalled Libra’s priorities after intense regulatory scrutiny from US lawmakers triggered massive exodus from the association last year.

While cryptocurrencies have great potential, they are notorious for widespread scams, frauds and hacks. Thus, scepticism towards Libra has been expected. US Congress-

woman Maxine Waters went as far as to request a moratorium on the development of Libra, comparing it to “starting a bank without going through any [regulatory] steps”.

Regulatory response around the world will differ due to diverse regulatory philosophies. While China is expected to ban Libra, Singapore will likely have a much more accommodating approach. Even though Ravi Menon, managing director of the Monetary Authority of Singapore, expressed concern that Libra raises global financial risk, Temasek’s involvement signals that the Singapore government has decided to focus on potential benefits.

Libra has the potential to be a game-changer in digital payments, thanks to Facebook’s 2.5 billion active users. While one of the major problems with existing cryptocurrencies is slow and insufficient adoption, Libra wallets will likely ease and accelerate Libra’s adoption, thus creating an immediate advantage over existing cryptocurrencies.

One could argue that a single digital currency — or perhaps very few of them — will dominate the global market, while the overwhelming majority will fail. In this “winner-takes-all” market, contenders are incentivised to move early and aggressively, and Libra’s start seems like the step in the right direction.

Libra 2.0

Libra was initially designed as a stablecoin fully backed by a basket of bank deposits and treasuries denominated in stable international currencies, comprising the US dollar, euro, Japanese yen, pound sterling and Singapore dollar. This backing would ensure a stable exchange rate in contrast to the overwhelming majority of existing cryptocurrencies with extremely volatile prices.

After the strong pushback from regulators around the world, Libra was recently revamped in the initiative allegedly aimed at minimising disruption to the global monetary system.

Libra 2.0 will comprise several stablecoins — each backed by a single currency such as the US dollar or Singapore dollar — separate from the Libra coin. The Libra White Paper added that “each single-currency stablecoin will be fully backed by … cash or cash equi-

valents and very short-term government securities denominated in that currency”.

Libra coin will be a “digital composite” of some of those coins — most likely the initial five currencies — and could potentially operate as a settlement coin in cross-border transactions as well as in countries without a single-

currency stablecoin on the Libra network.

In a further attempt to satisfy regulators, Libra re-emphasised its commitment to financial compliance, including strict enforcement of measures against money laundering, terrorism financing, sanctions compliance, and the prevention of illicit activities.

In the first stage of Libra’s rollout, Unhosted Wallets will not be allowed on the Libra network and their eventual inclusion will have limited balance and number of transactions. As Unhosted Wallets are, loosely speaking, non-institutional developments and thus crucial for financial inclusion, crypto enthusiasts criticised this deferral.

In another major change, the Libra Association will vet any wallet launched on the network. While the first Libra White Paper vowed to transition Libra to a permissionless system, Libra 2.0 backed out of this promise. Hence, Libra 2.0 will lack censorship resistance, disappointing cryptocurrency devotees who consider the absence of censorship a very important feature of cryptocurrency.

While Libra’s initial idea was to become a global digital currency with permissionless network and censorship resistance that would have an easy adoption by Facebook’s massive user base, Libra 2.0 has significantly scaled back from its initial promise and made uneasy compromises to satisfy regulators. In an attempt to please both crypto enthusiasts and regulators, it seems that Libra 2.0 has not satisfied either side. Time will tell.

Emir Hrnjic is an adjunct Assistant Professor at the National University of Singapore (NUS) Business School and a co-founder of Block’N’White Consulting. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.

Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.