Why
Facebook’s interest is its own survival, since a new financial utility ties in its social-media and chat customers. Still, the digitization of finance promises to make life easier and cheaper for billions of people. In China, where digital payments are ubiquitous, people transfer money to friends and firms within a chat app for almost nothing. In America, 18bn cheques are signed every year. Fees eat up 5% of a typical cross-border transfer. And credit-card giants skims about 0.25% from the global transactions they carry, which is worth over $30bn a year.
Challenges
Mr Zuckerberg’s initiative has two problems First, it could disturb the stability of the financial system. America’s biggest bank, JP Morgan Chase, has 50m digital clients. Libra could easily have ten times that number. Were every Western depositor to move a tenth of their bank savings into Libras, its reserve fund would be worth over $2trn, making it a big force in bond markets. Banks that suddenly saw lots of deposits leave for Libras would be vulnerable to panic over their solvency; they would also have to shrink their lending. And the prospect of huge sums flowing across borders will worry emerging countries with a fragile balance of payments. That is where the second danger comes in: the Libra’s governance.
In a tacit acknowledgement that it’s mishandling of user data, tolerance of the spread of misinformation and other sins have devalued Facebook’s credibility. It will be run by a Swiss association, initially controlled by the consortium. It will be independent of Facebook, though the social-media firm will supply lots of Libra users and could end up holding sway. Though Facebook says it is talking to regulators, the assumption seems to be that Libra can ultimately transcend governments and central banks. Facebook also promises that it will safeguard users’ data. Caveat emptor.
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