Why should the Development Sector Care about Facebook’s New Digital Currency?
What is the Libra?
The Libra is a new form of virtual currency that uses cryptography - the art of keeping sensitive information secure – and operates independently of a central bank. Facebook, the currency’s creators, promise it will be a ‘stablecoin’, a class of cryptocurrency traded at a fixed price, preventing price fluctuations and volatility. It is due to launch in 2020.
The technical aspects of the project will be overseen by The Libra Association, the currency’s not-for-profit foundation which includes membership from Facebook, over two dozen multinational partners, and international charities including Mercy Corps and Women’s World Banking.
What are the potential benefits of this new currency?
Mercy Corps US state that the Libra “could spark a revolution in financial inclusion”. They point out that “while 1.7 billion people don’t have access to a bank account, a billion of those same people do have a phone in their pocket. Libra could put new opportunities to save, send and spend money into the hands of those people — connecting them more closely with their local and global economy, and giving them transformed opportunities to provide for themselves, their families and communities”.
Mercy Corps Chief Neal Keny-Guyer highlights 5 key reasons why the Libra could be of benefit to international development:
- A stable, low-volatility currency could provide financial stability for people living in countries that are struggling with conflict, natural disasters and instability.
- A global, low-friction currency promises to reduce the financial costs that disproportionately face poorer communities. Such as the financial cost of remittances, which last year reached a record high of $529 billion, or 3.5% of the total amount sent
- The blockchain on which Libra will be built offers “enormous potential for innovation in the tough-to-solve area of user identification. For many people around the world, their identity is difficult to prove, limiting access to financial services
- Libra offers potential for innovation from new players to create financial services that work better for people living in poverty
- A global, stable and secure currency offers to transform how aid is operated and delivered around the world — increasing efficiency, transparency and accountability.
What do opponents have to say?
According to The Independent, some critics deem Libra to be the most “invasive and dangerous” form of surveillance yet. In fact, it is already banned in India, where there are expected to be 440 million Facebook users by 2023.
The main reason for this backlash is due to the series of privacy scandals Facebook has been responsible for in the past few years, including the Cambrige Analytica scandal which deeply questioned Facebook’s political neutrality. Despite arguments from the currency’s advocates such as those outlined above, critics state that at its core, the currency is “about Facebook enriching their reservoirs of data, knowing who you are, what you’re buying, who you’re paying and how much you have.”
What does this mean in the context of international development?
More than 4 billion people worldwide are unbanked or underbanked. This means that for many, the chance to grow capital, transact into broader markets, and grow their businesses is out of the question. Some state that Libra has “the potential to bring an entire generation of people into a more formal financial system”. Moreover, in 2012, Facebook made their app free for over 50 million mobile providers, meaning that for a large number of people, Facebook is their only access to free internet, and by extension, if Libra proves to be successful, to financial services.
Despite the very real concerns about the impact the currency will have on its user's security, if the Libra becomes as widely used as is expected, the impact on International Development will be enormous. Given our sector exists to facilitate the improvement of the livelihoods of those living in less developed countries, the Libra is definitely a technology worth understanding, albeit with a cautious eye.
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