Facebook causes a stir with a digital currency. Net money should be global, stable – and save the poor. Even experts fall on the slogans of the group.
It sounded so easy, what Facebook boss Mark Zuckerberg announced earlier this year as a vision: transfer money? This should be as easy as sending a photo in the future. Simply pay the music subscription with a click, transfer money to friends for the last lunch, buy the great sweater on Facebook with just one swipe. The digital currency Libra should make it possible, already in the coming year, it could start. But in the hype surrounding the money project, the facts are often confused. Here are the five most common mistakes.
Error 1: Libra is a Facebook currency
Facebook money, Zuckerberg dollars, or blue ducats: The planned digital currency Libra has many nicknames. Strictly speaking. However, all are misleading, because, behind the digital currency, Libra is not Facebook – at least not alone. The tech group has founded Libra with 27 other partners. In a consortium, they jointly watch over the well-being and woe of the currency.
Participants include payment service providers such as Visa and MasterCard, tech companies such as the driver agent Uber and the telecom group Vodafone. Already in the first half of 2020, the number of members in the consortium is expected to increase to about one hundred.
At least at first glance, Facebook is no more potent than the other partners. Finally, the principle of the new money covenant is that everyone is entitled to vote. The whole picture, however, is that the initiative for digital currency Libra in the home Facebook has emerged. Also, the company will “maintain leadership during 2019,” according to the Libra prospectus.
Error 2: Libra helps the poor
It sounds like touching selflessness: Facebook and co. Would help with their currency to the poor without an account. “To make life easier for you,” Libra’s mission as defined in the Key Issue Paper. Even otherwise, critical economic institutes and bank economists often share this assessment. Alone: it’s hard to believe.
According to the World Bank, 1.7 billion people worldwide currently live without an account. A survey of the World Bank study makers shows that two-thirds of respondents without an account stated at least as a reason that they simply have too little money to invest. Libra will not help you either. According to World Bank statistics, 30 percent say they do not need an account. Libra would not bring them either.
Most people without an account also live in China, India and Indonesia. But just in China, Facebook is banned. An Indian government commission is currently working to ban cryptocurrencies in the country. And in Indonesia, citizens are allowed to speculate on trading platforms with crypto-converts. But using crypto coins as a means of payment is not permitted. “Whether Libra really helps the poor is therefore questionable,” says finance professor Volker Brühl from the Center for Financial Studies. Mainly as many people in developing countries rely on cash.
Mistake 3: Libra is a safe currency
Time and again, the creators of the digital motto advertise how stable Libra will be in its value. Because when users buy euro, yen or pound Libra coins, the conventional money is to move into a reserve, one to one. That sounds like security: In the end, the traditional cash would still be there. But the problems are in detail.
A guarantee that users can always exchange their Libra coins back into a national currency, the consortium does not give. “Anyone can be confident that they can convert their digital currency into local currency at an exchange rate,” the Libra makers write. “Highly secure,”? After a firm commitment that does not sound like that.
Also, there is a second problem: the price of Libra should be based on a basket of dollars, euros, yen, pounds and Singapore dollars, as the Mirror reports. While it is true that these currencies are relatively stable. But to a certain extent, they do fluctuate with each other. For consumers in the euro area, this means that the value of Libra will shift against the euro. “Private investors are becoming currency speculators,” says crypto expert Gilbert Fridgen from the University of Bayreuth.
Error 4: Libra is a crypto motto
The technical framework of the declared world currency has been sketched by 52 experts on 29 pages. And yet many crypto-specialists ask themselves: is Libra, in the end, a single big label fraud? Because it is disputed how much “crypto” is really in Libra.
On the one hand, transfers from A to B should also be encrypted at Libra. But the similarities with popular cryptocurrencies like Bitcoin already end here.
Especially orthodox supporters of the crypto movement complain: Libra has about two dozen large corporations sovereignty over the whole network, at Bitcoin again everyone can control the system. Because the technical network behind Bitcoin does not operate a central office as a single bank, but many users together. Approximately 11,000 of these users provide large computer capacities and thus check the remittances in the network.
At Libra, on the other hand, at first only the 28 founding members will have a say and all remittances will be waved through. If you want to join this band of Libra administrators, you have to pay at least ten million dollars entry fee. Decentralized and open to everyone, as the crypto-purists imagine, the network is not. “It’s a consortium of corporations,” warns crypto expert Fridgen. From the ideals of the crypto, movement is not much to recognize, complain, experts, the term cryptocurrency a label fraud. Libra points out that the professional network will be opened to the public in five years at the latest. Experts doubt, however, whether this is technically possible. Some say Libra has as much to do with popular cryptocurrencies as central bankers with gold washers.
Mistake 5: Libra becomes the new world money
Facebook and Co. do not want to bake bread. They spoke of a “global currency” when they introduced the idea of starting in the first half of 2020. But experts seem unlikely. Financial supervisors in the US and Europe are increasingly critical. Terrorist financing? Investors security? Interference in monetary policy? The Libra makers need answers to all these worries. “Under these conditions, we can not allow the development of Libra on European soil,” said France’s Finance Minister Bruno Le Maire recently. So whether Libra is actually allowed around the globe is questionable. “Probably they only start in quite a few developing countries,” says crypto expert Volker Brühl. There would hardly be any talk of a world currency.