Hannah Murphy in the Financial Times has the scoop this morning: “Facebook’s Libra currency to launch next year in limited format.” [FT, paywalled]
The new information is, “according to three people involved in the initiative”:
- There will only be a US dollar token running on the network — no EUR or GBP, no synthetic Libra currency;
- Facebook’s Novi wallet is ready as a product, to be released in the US and some Latin American countries — “high-volume remittance corridors”;
- Novi is still waiting on up to 10 state approvals, and still doesn’t have a New York BitLicense;
- Approval for the Libra Association from FINMA, the Swiss regulator, hasn’t come through yet;
- There’s no date as yet, though they hope for January 2021.
This is even more cut down than the Libra 2.0 plan from April. So this is basically Paypal-but-it’s-Facebook, with US dollars.
What problem does a US dollar Libra solve?
After all the hugely ambitious plans in the white papers … what does a US dollar Libra achieve? What problem does this solve?
The main problem it solves is Libra being allowed to start on any level at all — assuming they can get this version of the initiative approved.
Remember that the US House asked David Marcus, the Facebook executive in charge of the Libra initiative, to run a strictly limited pilot or sandboxed version — to make sure problems emerging at scale could be dealt with early. Marcus refused to commit to such an idea.
This was bizarre. In payments, you routinely start with a small pilot programme — because you never know quite know what weird things people will do, until you go live. PayPal ran several such pilots while Marcus was President.
So, if it’s allowed, this would be an alternative way of taking a version of the Libra system live — since Marcus passed up on running a small pilot.
The USD Libra’s reserve would still be big enough to be a problem
Libra seems to still be doing this as tokens backed by a reserve, where the reserve is invested in cash-equivalent government and commercial paper. (Libra Shrugged, chapter 7.)
If the Libra dollar is done at Facebook scale, then it will still have the problems the Libra Reserve plan had before — where there’s so much money in the reserve that it could destabilise financial markets by itself, and even soak up all the cash-equivalent investments.
This is the same problem that money market funds caused in the run-up to the 2008 financial crisis — and there is no way on earth that regulators will let Facebook get within a mile of doing a 2008 all by themselves. The size of the reserve would need to be strictly limited.
Problems caused by insisting on a blockchain token
If Novi still don’t have a BitlLicense for New York, that’s a major problem if the Libra dollar is a crypto-asset.
Of course, there’s no reason to do Libra on a blockchain, except to say it’s on a blockchain. Nothing in the financial side of the plan requires a blockchain. So doing Libra without that would avoid having to wait on the New York BitLicense.
But the Libra Association is still hot on the blockchain as a key part of their plan — remember that the Libra initiative was started by four ardent bitcoiners.
In shocking news, someone who isn’t Facebook has put engineering effort into Libra — Bison Trails has added the Query and Transactions Clusters Protocol, a back-end thing to interface to the Libra blockchain. (Libra Shrugged gets a few paragraphs, even if not by name.) [CoinTelegraph]
Regulators don’t like “stablecoins,” i.e. Libra
The Bank of International Settlements recently released another working paper on “stablecoins” — i.e., Libra. It sets out fairly concisely why the Libra 2.0 plan is unlikely to be acceptable to central banks and regulators as it was proposed in April, and the problems with the weight of the reserve still exist with a US dollar token. [BIS, PDF]
(This paper also goes into known issues surrounding Tether much more bluntly than any central bank stablecoin paper I’ve seen.)
Just today, Fabio Panetta of the European Central Bank spoke at the Deutsche Bundesbank conference: “From the payments revolution to the reinvention of money” — about new payment systems. [ECB]
Panetta has nothing good to say about “stablecoins”:
As I have argued previously, stablecoins raise concerns with regard to consumer protection and financial stability. In fact, the issuer of a stablecoin cannot guarantee the certainty of the value of the payment instrument it offers to consumers. Such a guarantee can only be provided by the central bank.
Moreover, unlike bank deposits, stablecoins do not benefit from deposit guarantee schemes, their holders cannot rely on the degree of scrutiny that is now the norm in banking supervision, and the issuers do not have access to central bank standing facilities. As a result, stablecoin users are likely to bear higher credit, market and liquidity risks, and the stablecoins themselves are vulnerable to runs, with potentially systemic implications.
Libra won’t be allowed to operate in Europe without addressing all of these concerns — which were raised when the Libra plan was first floated, in June 2019.
Is Libra going to be a thing now?
So — is Libra happening at last, a year and a half on?
Maybe. I predicted in Libra Shrugged that Facebook would push out something called Libra. Though that wasn’t too hard to predict.
Libra can’t proceed without FINMA approval. Running a crypto-token for New York customers may be problematic without a BitLicense. The scheme as it stands won’t be allowed into Europe.
Libra is trying to change their scheme as little as possible between iterations — but that’s much less than they need to.
The FT article notes that none of the other Libra Association members have plans to do anything with Libra tokens until the system is up and running.
If it happens — will customers use it? Customers don’t use Facebook Pay any more than they previously used Messenger Pay. It’s just dollars.
Facebook rolled out Whatsapp Pay India, which just uses the same Universal Payments Interface that all the payment providers use in India. But it’s getting some popularity because Facebook is charging zero fees — they’re subsidising the system.
Perhaps Facebook can out-compete PayPal, Venmo and Zelle by offering zero fees as an incentive.
Even then, you’d need to trust Facebook. David Marcus and Mark Zuckerberg both said that data from the Novi wallet would be kept separate from the Facebook advertising engine.
Marcus has a track record of sincerity, so I’d think he believed this would be the case — but, given Zuckerberg’s past track record of saying he wouldn’t abuse your privacy and then doing it anyway, I would be amazed if he hadn’t had his fingers crossed.
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