As Facebook Prepares To Launch Libra, Regulators Are Watching

Facebook, Inc. FB's bold move into the cryptocurrency space with the planned launch of Libra in 2020 is certain to draw the attention of regulatory authorities.

'High Standards Of Regulation'

The Cambridge Analytica data scandal in 2018 involved the harvesting of personal data of millions of people's Facebook profiles without their consent for the purpose of political advertising.

In light of Facebook’s privacy track record, should users trust the social media network with their finances and allow it to collect more consumer data?

The Libra cryptocurrency is set to be backed by a basket of fiat currencies — such as the U.S. dollar and the euro — with governance by the Libra Association, which counts Visa Inc V, Mastercard Inc MA among its founding members.

Randal Quarles, the chair of the Financial Stability Board that coordinates financial rules for G-20 countries, commented on the crypto, according to Reuters.

“A wider use of new types of crypto-assets for retail payment purposes would warrant close scrutiny by authorities to ensure that they are subject to high standards of regulation,” he said.

3 Expert Takes

Credit Suisse analyst Moshe Orenbuch recently said Libra should be relatively stable compared to popular cryptocurrencies like bitcoin.

At the same time, earnings on the reserve of currencies should cover Libra’s operating costs, making the cryptocurrency a low-cost option for digital payments, he said.

Iain Wilson, advisor at the venture capital and investments firm NEM Ventures, said a company like Facebook has huge distribution and potential for P2P or micro transactions, so the mass market will be further exposed to tokens.

"At this point, people will be free to exchange out of a centralised Facebook system into a more decentralised currency like bitcoin," he said.

Tony Gu, founding partner at NEO Global Capital, said Facebook's entry into cryptocurrency mirrors the transformation of the global financial system into a virtual economy.

"Whereas cryptocurrencies are often not viewed in the same league as traditional capital markets, the scales are set to tip in favor of the digital asset class with the social media behemoth's latest endorsement via Libra," he said.

"The digital coin’s core proposition, beyond onboarding a greater sense of legitimacy to the nascent space, lies in its fulfillment of a future where Facebook becomes the sole custodian of value.”

A Distinguishing Factor

The pegging of Libra to government-issued assets is a distinguishing factor.

“With some of the world’s biggest payment giants such as Mastercard, Visa, PayPal Holdings Inc PYPL and Stripe on the consortium of companies governing Facebook’s bespoke cryptocurrency, and with its coin due to be pegged to government-issued cryptocurrencies, this development is bound to transform the way international transactions are carried out," said Mateusz Tilewski, CTO of Concordium.

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Photo courtesy of Facebook.