Facebook’s initiative for the Libra stablecoin caused lots of hype in the summer of 2019, quickly followed by a lack of trust and an exodus of partnered companies. Governments, central banks and regulatory agencies are strongly opposed to the idea of a company-created form of money. In an interview with Financial Times Ajay Banga, the CEO of Mastercard, gave four reasons for abandoning the Libra project.
- Banga didn’t understand the business model of Libra. “When you don’t understand how many gets made, it gets made in ways you don’t like”, he said in the interview.
- He had concerns about Facebook’s data integrity. The social media and advertising behemoth has a long history of privacy issues.
- Libra was supposed to be about financial inclusion, but it did require a proprietary digital wallet called Calibra. “It went from this altruistic idea into their own wallet. I’m like: ‘this doesn’t sound right’.”
- The CEO of Mastercard was also worried by the lack of commitment to comply to Know-your-Customer (KYC) and anti-money laundering (AML) controls.
These comments by the 60-year-old CEO of Mastercard reflect earlier statements from other companies that left the project. For example, Visa mentioned regulations as an important aspect of blockchain-based networks for secure digital payments. In addition Paypal had concerns about money laundering, and Facebook’s inability to deal with that criticism.
Exodus at Libra continues
Mastercard left the Libra Association in October, together with many other companies. Creditcard competitor Visa did the same, as well as companies like Booking.com, Ebay, Paypal, and Stripe. Vodafone is the latest company to leave the stablecoin project. They want to create something on their own.
The Libra Association now officially consists out of twenty companies. The board of directors represents these board members of the association. The board needs a two-third vote to have another company join the association. According to the Libra Association at least 1500 entities have interest in joining the project.
The following companies are currently in board of the Libra Association: Calibra, Coinbase, Xapo, Anchorage, Bison Trails, Creative Destruction Lab, Andreessen Horowitz, Thrive Capital, Ribbit Capital, Union Square Ventures, Breakthrough Initiatives, Illiad, Farfetch, Uber, Lyft, Kiva, Mercy Corps, Women’s World Banking, Spotify and PayU.
Libra not dead yet
It’s been relatively quiet around Libra this year so far. Even though many companies stepped away from the project and governments don’t like it, it’s there. Mark Zuckerberg announced Libra this summer. The association has a bold vision to introduce a dollar-pegged stablecoin that can be used by unbanked individuals worldwide. In its original vision a consortium of 100 companies would oversee the token’s governance.
Facebook is backing Libra with several currencies. This was specified as follows: U.S. dollar (50%), the euro (18%), yen (14%), British pound (11%) and the Singapore dollar (7%). As a result the Libra token would always maintain its value against the US dollar.
Central banks and governments woke up
The announcement of Libra immediately gave shivers to regulators and governments worldwide. For example they argued that Libra would enable criminal activity, and that the digital currency would damage the sovereignty of national governments. Around the world many governments and central banks announced plans or made statements for their own digital currencies.
Switzerland already announced a digital currency. Sweden has been testing a digital krona. In addition China is already ahead of the game as they plan to launch a digital yuan in the coming six months. In addition Europe is talking about a digital euro as well.
While central banks are thinking about digital currencies, they’ve also lowered interest rates. This sparked the discussion about the viability of cryptocurrencies as mainstream payment options. Central banks and governments are obviously protecting their own payment models, because they could lose their power. It’s something we’ve seen many times before in history.
Also published on Medium.