Virtual Facebook currency faces real-world resistance

Facebook unveiled on June 18, 2019 its global crypto-currency "Libra," in a new initiative in payments for the world's biggest social network with the potential to bring crypto-money out of the shadows and into the mainstream. (AFP / JUSTIN SULLIVAN)
Updated 21 June 2019

Virtual Facebook currency faces real-world resistance

  • In India, "Libra” currency will have to overcome regulatory mistrust and popular homegrown rivals 
  • China and Iran markets are out, and winning over governments in other countries also a big challenge

LONDON: If Facebook’s new cryptocurrency should resonate anywhere it should be India, where the social media giant has more than 300 million followers.
Many Indians are shut out of banking and face punitive fees for simple transactions, like transferring money to their loved ones.
But in India as elsewhere, the US company’s ambitions to remake global finance through its “Libra” currency will have to overcome regulatory mistrust, plus the existence of popular homegrown rivals in the market for digital payments.
“If regulations were not a hurdle in India, Libra would instantaneously have a massive reach because of Facebook,” Anirudh Rastogi, the founder of a technology-focused law firm in New Delhi, told AFP.
When it launches next year, Libra will be backed by a basket of real-world currencies and a consortium of companies. To mint and store new coins, access to its underlying “blockchain” technology will be more restrictive than for the free-for-all of bitcoin.
Companies rooted in traditional finance such as Visa and MasterCard have joined from the start, betting that Facebook’s clout gives the project enough potential to overcome any downside to their existing business models.
“I will definitely use Libra as the idea seems good and they have a big partnership list thereby offering credibility,” 23-year-old consultant Prasad Khake said in Mumbai.
“The platform will work depending on how accessible and easy it is for billions of Indian users,” he said.
Therein lies the problem. Cryptocurrencies are currently banned in India, and the country’s central bank, which calls them a “contagion,” is taking its time to craft a regulatory framework.

<b>Banned in China</b>
Facebook itself is banned outright in China, and the company admitted it would be unable to operate Libra anywhere that is subject to US sanctions, such as Iran.
There is suspicion too on its home turf, with US lawmakers highlighting Facebook’s poor record in safeguarding user data. The Senate banking committee has scheduled a hearing for July 16.
French Finance Minister Bruno Le Maire said digital money could never replace sovereign currencies. Bank of England governor Mark Carney said Libra would have to withstand the toughest scrutiny and not become a tool for money laundering or terrorist financing.
There is clearly potential if Facebook makes good on its pledge to bring low-cost or free banking to the unbanked and open up areas such as money transfers, where the company — citing UN data — says migrants lose $25 billion every year in remittance fees.
For their part, money transfer businesses say they welcome the challenge.
“It may help with educating regulators, could evolve the payments ecosystem faster and eventually lower the cost of moving money, making the conversations on the issues we’re tackling more mainstream,” TransferWise chief technology officer Harsh Sinha told AFP in London.
To access Libra on their smartphones, users will go through a virtual wallet called Calibra. There are plenty of such e-wallets already, however.
Paytm and FreeCharge are popular in India. Facebook’s own WhatsApp has been trialling a digital payments service in India, but has faced resistance from the central bank.

<b>'Regulate, don't ban'</b>
The Philippines could be another fertile market, with Filipinos working overseas sending tens of billions of dollars every year through money transfer outlets. But often in the Middle East and the rest of Asia they are kept on a tight rein by employers and lack access to the Internet.
“They (overseas workers) barely embraced online banking so cryptocurrency may even be a stretch unless the demographics goes to an upswing with tech-savvy millennials,” said Victoriano Gimenez, an electrical engineer who worked for six years in Saudi Arabia.
Another popular platform in India is M-Pesa, which started life in east Africa and has helped millions in Kenya, Zimbabwe and elsewhere move beyond cash and traditional banking.
Winning over the foreign public to the idea of Western-backed crypto payments is one thing. Winning over their governments is another, and could be the biggest challenge to global adoption of Libra.
“Regulators around the world have really now to wake up and actually say ‘well, what do we do about regulating this?’ and not just banning this, because it won’t be going away,” Iqbal Gandham, managing director of eToro in Britain and chairman of the industry group CryptoUK, told AFP.
But even if regulators don’t see a threat to their sovereign currencies, they will still be exercised by exchange rate risk, liquidity in times of financial crisis, and the impact on corporate competition, according to ING economists Teunis Brosens and Carlo Cocuzzo.
“While a lot remains unclear at this stage, Facebook has clearly started a new chapter on digital currencies,” they wrote in a research note. “Over to policymakers for a response.”


World should back Vision 2030 strategy says global risk guru

Updated 22 November 2019

World should back Vision 2030 strategy says global risk guru

  • Ian Bremmer: When I see how much more dynamic Riyadh is compared to two years ago, it’s really undeniable that they are actually trying to modernize society
  • Bremmer: They are hosting the G20, and that could help to make them confident enough to push forward on a resolution to the Qatar issue

BEIJING: The world should back Saudi Arabia’s transformation strategy under Vision 2030 despite the challenges the Kingdom has faced, according to Ian Bremmer, one of the leading political risk advisers in the world.

“When I see them moving toward Saudization, when I see how much more dynamic Riyadh is compared to two years ago, it’s really undeniable that they are actually trying to modernize society. I think that’s really important and we should all be rooting for that process to continue,” he told Arab News on the sidelines of the Bloomberg New Economy Forum in Beijing.

He said that the ongoing reforms in the Kingdom were helping it rebuild its international reputation following criticism over the death of journalist Jamal Khashoggi last year. “They are hosting the G20, and that could help to make them confident enough to push forward on a resolution to the Qatar issue.”

“It would be nice if there could be some reduction in the problem with Qatar, and some reintegration of the GCC, and there has been some progress toward that. The fact that we have a peace deal in south Yemen, that will make a difference too, and hopefully it will reduce some of the tension with Iran as a consequence,” he added.

Bremmer was speaking about climate change and other issues at the forum, at a session that acknowledged the difficulty of meeting targets to get rid of fossil fuels by the year 2050. He also talked about the looming “technology wars” between China and the US.