By Nadia Zaifulizan
Libra was first launched as a new sensational form of international currency by Facebook, the social media giant. Facebook has billions of users worldwide and high annual profits. The strength behind Facebook and the idea of a seamless, borderless, international cryptocurrency, is a credible foundation for Libra’s success. This can be seen by the number of top companies which initially signed on to help govern the new currency.
Unfortunately, the current support towards Libra and its original framework is weakening. The founding members of Libra were meant to convene in Geneva on October 14th. On October 4th, Paypal withdrew from the team. Next Visa, Mastercard, Stripe, Mercado Pago all left the project on October 11th. eBay also withdrew before the start of the first Libra Council meeting. The Libra Association has now lost all the major US payment processor who initially showed interest in the project. For a Facebook-backed project, this is a surprising development.
Since Libra’s form of currency is virtual and extending on many regions, regulators are concerned about national security matters. Lawmaker’s concern is the ability to fund criminal activities undetected, and the probability of affecting the stability of financial systems. They were concerned about the risks of Libra inadvertently making it easier for all money-related activities to occur, including money laundering, fraud, and terrorism funding. If these crimes occur in the utilization of Libra, the major payment processor companies will likely be blamed for playing a part in the cryptocurrency project.
This was how regulators previously put pressure on the major payment companies. They declared that there will be increased surveillance from financial regulators if the major payment companies continue to take part in the Libra association. Eventually, all the major US payment processor companies left before Libra’s first formal charter.
Facebook’s reputation in the previous data privacy scandals inevitably lessened regulators belief in the execution of Libra. With this knowledge in mind, the head of the Libra cryptocurrency project spoke about how the network is designed so that the Libra Association is tasked to govern the network, and not Facebook. The Libra team also explained that it will not launch until it meets regulatory requirements and lawmakers’ concerns are addressed. The Libra Association is determined to turn this project into a real, globally usable service.
The initial project plan was to peg the Libra stablecoins to a collective of national currencies, whose holdings are set by the Libra Association. This was met with objections by national banks because it undermines their authority to function in the best interests of their countries’ banking and transaction governance. Users will be able to perform transactions outside the bank’s control. In the case involving illegal activities, many transactions will be unknown to the national banks.
However, after months of intense scrutiny and opposition from lawmakers and initial association members backing out, the Libra Association unexpectedly announced that they are open to alternative approaches to the original structure of the project. Instead of pegging the Libra stablecoins to collective currencies, there could be a series of stablecoins sets for each of the many different countries’ currency. For example, a dollar stablecoin for the US, and a euro stablecoin for European countries. The full details of how the Libra project will run is still unconfirmed, but for now the reaction of regulators and lawmakers has ultimately placed a huge pressure on the planning and execution of the Libra project.