Facebook’s Libra currency under fire

Libra has raised eyebrows among the world’s financial regulators, including the Bank of England, the European Central Bank and the US Federal Reserve. (File/AFP)
Updated 14 July 2019

Facebook’s Libra currency under fire

  • Libra will be co-managed by 100 partner firms, including Facebook’s newly-minted financial services division Calibra
  • Libra, which is widely regarded as a challenger to dominant global player Bitcoin, is expected to launch in the first half of 2020

LONDON: Facebook’s planned virtual unit Libra, already under heavy attack from US President Donald Trump and global regulators, faces skepticism among the wider cryptocurrency community as well.
One theme — besides Brexit — dominated discussion among the movers and shakers from London’s financial technology or FinTech industry as gathered for their annual get-together: the future of virtual currencies.
“Can I just ask you to raise your hand if you would not be willing to use Libra?” asked the moderator at an event at London’s recent ‘FinTech Week’.
In the room, filled with about 100 experts and media who closely track the sector, about two-thirds of participants raised their hand to express distrust at the upstart currency.
Helen Disney, founder and boss of Unblocked Events, which promotes the blockchain technology that powers many cryptocurrencies, acknowledged growing doubts over who exactly would oversee and regulate Libra’s operation.
People are “concerned about how the governance... would work,” Disney told AFP.
“The cryptocurrency community is very libertarian in thinking,” its “about giving power to the people, democratization of finance, keeping away from big banks and companies who control (the) economy,” she said
Last week’s gathering came one month after Facebook announced to the world its plans for the virtual currency.
Libra, which is widely regarded as a challenger to dominant global player Bitcoin, is expected to launch in the first half of 2020.
Whereas Bitcoin is decentralized, Libra will be co-managed by 100 partner firms, including Facebook’s newly-minted financial services division Calibra.
The companies behind Libra — which will be backed with a basket of real-world currencies — include payment giants Visa, MasterCard and PayPal, as well as taxi-hailing services Lyft and Uber.
To access Libra on smartphones, users will go through a virtual wallet that will also be named Calibra.
While Facebook boasts an enormous customer base dotted across the globe that should facilitate Libra’s uptake, it firm also been plagued by privacy concerns that could make users hesitate.
“Can’t wait for a cryptocurrency with the ethics of Uber, the censorship resistance of Paypal, and the centralization of Visa, all tied together under the proven privacy of Facebook,” said Sarah Jamie Lewis, head of non-profit research organization Open Privacy.
Libra has meanwhile raised eyebrows among the world’s financial regulators, including the Bank of England, the European Central Bank and the US Federal Reserve.
But Disney believes that Libra will finally force regulators to present clear regulation guidelines, as demanded by the cryptocurrency community itself.
“We have been waiting for a long time for a clearer signal (regarding) the regulation of cryptocurrencies and digital assets,” she said.
But James Bennett, head of cryptocurrency research firm Bitassist, argues that Libra should not be seen in the same light as Bitcoin.
“In the long run, people may realize that Libra is not a cryptocurrency,” Bennett said at the FinTech Week event.
“A true cryptocurrency should be resistant to attacks by all parties, from sovereign states to global corporations,” he said, adding that “cryptocurrency is a type of money used to transfer value over the Internet that cannot be stopped, confiscated or destroyed by any single entity.”
Trump has meanwhile unleashed a vicious attack on virtual currencies, slamming them for their alleged shadowy nature and arguing that Libra had no standing nor dependability — unlike the dollar.
“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 tweeted Thursday.


Oil-rich wealth funds seen shedding up to $225 billion in stocks

Updated 30 March 2020

Oil-rich wealth funds seen shedding up to $225 billion in stocks

  • Risking more losses is not an option for some funds from oil-producing nations

LONDON: Sovereign wealth funds from oil-producing countries mainly in the Middle East and Africa are on course to dump up to $225 billion in equities, a senior banker estimates, as plummeting oil prices and the coronavirus pandemic hit state finances.

The rapid spread of the virus has ravaged the global economy, sending markets into a tailspin and costing both oil and non-oil based sovereign wealth funds around $1 trillion in equity losses, according to JPMorgan strategist Nikolaos Panigirtzoglou.

His estimates are based on data from sovereign wealth funds and figures from the Sovereign Wealth Fund Institute, a research group.

Sticking with equity investments and risking more losses is not an option for some funds from oil-producing nations. Their governments are facing a financial double-whammy — falling revenues due to the spiraling oil price and rocketing spending as administrations rush out emergency budgets.

Around $100-$150 billion in stocks have likely been offloaded by oil-producer sovereign wealth funds, excluding Norway’s fund, in recent weeks, Panigirtzoglou said, and a further $50-$75 billion will likely be sold in the coming months.

“It makes sense for sovereign funds to frontload their selling, as you don’t want to be selling your assets at a later stage when it is more likely to have distressed valuations,” he said.

Most oil-based funds are required to keep substantial cash-buffers in place in case a collapse in oil prices triggers a request from the government for funding.

A source at an oil-based sovereign fund said it had been gradually raising its liquidity position since oil prices began drifting lower from their most recent peak above $70 a barrel in October 2018.

In addition to the cash reserves, additional liquidity was typically drawn firstly from short-term money market instruments like treasury bills and then from passively invested equity as a last resort, the source said.

It’s generally a similar trend for other funds.

“Our investor flows broadly show more resilience than market pricing would suggest,” said Elliot Hentov, head of policy research at State Street Global Advisers. “There has been a shift toward cash since the crisis started, but it’s not a panic move but rather gradual.”

The sovereign fund source said the fund had made adjustments to its actively managed equity investments due to the market rout, both to stem losses and position for the recovery, when it comes.

Exactly how much sovereign wealth funds invest and with whom remain undisclosed. Many don’t even report the value of the assets they manage.

On Thursday, the Norwegian sovereign wealth fund said it had lost $124 billion so far this year as equity markets sunk but its outgoing CEO Yngve Slyngstad said it would, at some point, start buying stocks to get its portfolio back to its target equity allocation of 70 percent from 65 percent currently.

Slyngstad also said that any fiscal spending by the government this year would be financed by selling bonds in its portfolio.