FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
July 16, 2019

IN THIS ISSUE:

1. What Facebook’s LIBRA Cryptocurrency is All About

2. How Big Could Libra Be, Or Will It Even Make It?

3. Major Issues With Protecting Identities & Privacy

4. Conclusions: Libra May Flop or Be Really Big  

Overview

By now I’m sure you have at least heard something about the new “Libra” currency that Facebook plans to roll out in 2020. There are those who welcome the new currency and believe there’s a chance it could rival the US dollar in the future. Then there are those who oppose it and are convinced it will violate your identity and threaten your privacy. And, of course, there are lots of skeptics who believe the Libra won’t make it at all.

History is littered with new currencies that didn’t make it. It remains to be seen if the Libra is just another one of them, or if it could become the next major world currency. Today, I’ll tackle these issues and suggest how you may want to think about the Libra going forward. It can be complicated, but I’ll try to keep it simple.

What Facebook’s Upcoming LIBRA Cryptocurrency is All About

Libra is an as-yet theoretical new blockchain digital currency proposed by the American social media conglomerate Facebook. The project, currency and transactions are to be managed and entrusted to the Libra Association, a membership organization founded by Facebook’s Calibra subsidiary and 27 other big names spanning financial services, technology, telecommunications, the online marketplace, venture capital and nonprofits (more on the Libra Association below).

As of this writing, the proposed currency and network do not yet exist, and only rudimentary experimental code has been released. Facebook says the launch is planned for some time in 2020. Calibra/Libra is getting support from big hitters such as MasterCard, Visa, American Express, PayPal, eBay, Spotify, Uber and Lyft, just to name a few. If successful, the service will be available in Messenger and WhatsApp as well as in a stand-alone app.

In the initial announcement in June, Facebook said its hope with Calibra/Libra is to address a challenge that many people around the world face today: having access to basic financial services. According to Facebook:

"Almost half of the adults in the world don't have an active bank account, and those numbers are worse in developing countries and even worse for women. The cost of that exclusion is high – for example, approximately 70 percent of small businesses in developing countries lack access to credit, and $25 billion is lost by migrants every year through remittance fees" [to send money to their home countries].

When it arrives, Calibra will let people send and receive Libra cryptocurrency by simply using their smartphones. Eventually, Facebook said, it wants to offer more services for people and businesses, including the ability to make purchases, easily pay bills, buy a cup of coffee, ride public transit, etc., etc. – without the need for cash or a physical pass. Facebook says it will work similarly to the current “tap-to-pay” features Apple and Google have made available in New York City's subway system.

As for how you can get funds in your Calibra/Libra account, Facebook says there will be a sign-up process that will allow you to select from a list of partner payment providers, such as MasterCard, Visa, PayPal, Stripe, etc. Additionally, people will be able to go to local or online currency exchanges, where they can, for example, turn US dollars into Libra in their Calibra “digital wallet” which allows individuals to make electronic transactions.

Facebook says that, while Calibra won't act as a cryptocurrency “exchange,” the service may integrate with some of them in the future – though it didn't specify which ones that could be.

How Big Could Libra Be, Or Will It Even Make It?

Facebook announced its grandiose plans for Calibra/Libra less than a month ago, and it has garnered a lot of attention in the financial media. As noted above, it already has plenty of big name would-be backers. Facebook believes the launch of Libra will be successful in-part because it expects large numbers of its more than two billion followers to use it. We’ll see.

The project is the biggest step of any major corporation into the emerging realms of digital currency and blockchain technology. It represents a vote of confidence that experiments in new forms of digital payments could be more than a passing fad. This also remains to be seen.

If Libra makes it, we will witness the emergence of a currency that’s backed and sponsored, not by a sovereign government, but by large multibillion-dollar corporations for the first time in history. These backers believe the Libra could be useful to people who don’t have easy access to banking services or cash, such as people in crises immediately after natural disasters or other unstable situations.

Yet for Libra to make it as a viable global currency, much less rival the US dollar, it will have to be far more useful than that described just above.

While Mastercard, Visa and some big banks are backers of Libra, there are plenty of potential problems and concerns that may make it difficult to launch a new “alternative” currency. The main complaint about traditional currencies was their instability, with rapid and uncertain inflation making them a poor store of value. But the dollar, the euro, the yen and the renminbi have been relatively stable in recent years. If anything, the worry today is more about deflation than inflation.

In addition, the world has made much progress on financial transparency in recent years, making it more difficult for the banking system to be used to launder money and for other nefarious activities. And technology has enabled us to complete transactions efficiently, moving money from customers’ accounts into those of retailers in nanoseconds, with remarkably good fraud protection.

Thus, the Libra naysayers believe the last thing we need is a new unregulated currency for nurturing illicit activities and laundering the proceeds – which another cryptocurrency will almost certainly turn out to be, in their view.

Major Issues With Protecting Identities & Privacy

Whether you are for or against Libra, there is one major concern shared by all. The first is the credibility of Facebook itself. Put simply, there are serious privacy concerns with Facebook knowing: Who we are, what we’re doing, what we’re spending money on and who we’re dealing with. Facebook itself admits this is a serious issue and promises it is aggressively addressing this concern.

Even before the announcement of Libra, Facebook had been under fire for a series of privacy breaches, the promulgation of “fake news” and the Cambridge Analytica election scandal. These factors alone had caused FB’s co-founder Chris Hughes, who left the company in 2007, to call for Facebook’s breakup on an antitrust basis. Another concern is that Libra could give Facebook tremendous power over developing economies.

Facebook executives have repeatedly stressed that any financial services they create will be properly regulated, and that our identities and privacy will be protected. But it is already clear that the company hopes to skirt banking regulations and compete directly with banks around the world – again, assuming Libra makes it.

Last Thursday, President Trump sharply criticized Bitcoin, Facebook's Libra and other cryptocurrencies. He demanded that crypto companies seek a banking charter and make themselves subject to US and global regulations if they wanted to "become a bank."

"I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air," Trump posted on Twitter.

"If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International," he insisted.

Trump's comments came one day after Federal Reserve Chairman Jerome Powell told lawmakers that Facebook's plan to build a digital currency called Libra “cannot move forward” unless it addresses concerns over privacy, money laundering, consumer protection and financial stability, among others.

To these concerns, Facebook repeatedly reminds critics that its aim is to grow its controlling entity, the Libra Association, from the current 28 independent members to 100 companies that can be trusted to post transactions without the need for any independent validation system. And it promises to treat our information with the utmost privacy. Again, this remains to be seen.

In conclusion, I have emphasized above that there’s no guarantee Facebook and its partners will be successful in making Libra a major world currency. On the other hand, it is impressive that so many high-profile financial companies have joined the Libra Association, and even more have expressed interest. And we can’t forget that Facebook has over two billion users worldwide, and co-founder Mark Zuckerberg believes many of them will embrace Libra.

At the end of the day, Libra could be an expensive and embarrassing failure, or it could be really, really big. I will stay on top of this and may have updates in the near future. There are a couple of articles in the links below which go into more detail on Libra.

I hope this information has been helpful.

Best regards,

Gary D. Halbert

SPECIAL ARTICLES

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