Facebook’s digital coin set to run into rough weather

New Delhi: Sensing a multi-billion dollar opportunity to improve the cross-border payments system, Facebook is launching its own digital coin called ‘Libra’ next year which is set to run into rough weather with several governments, including India, not treating cryptocurrencies as legal tender.

The move to launch ‘Libra’ comes at a time when Facebook is under intense pressure from regulators, shareholders, and users to address privacy shortcomings.

The social networking giant with over two billion users globally is facing regulatory challenges as the Cambridge Analytica scandal has exposed its lapses of data privacy and security.

According to senior Forrester analyst Aurelie L’Hostis, now that Facebook is reaching out to financial firms and payments service providers to join the Libra consortium to help them launch their cryptocurrency-based payments system, we can expect regulators and governments to raise questions regarding Facebook’s financial data collection and management process.

“By launching its own cryptocurrency, Facebook is essentially creating its own shopping ecosystem where consumers and businesses will be able to buy and sell products on its platforms without having to use web payment systems like PayPal,” L’Hostis told IANS.

However, the move is set to see some intense scrutiny as there is a huge trust deficit with Facebook.

Facebook has been making inroads into financial services, having applied for an EU “e-money” license five years ago in order to let users use Facebook to pay and exchange money with others on the platform.

According to Meng Liu, another analyst with Forrester, the Libra vision sets up a series of massively complex challenges.

“A cryptocurrency is used by 2.7 billion people across the globe would be a threat to national sovereignty and the disruption of their ability to coin money.

“China, Indonesia, and Pakistan have already banned Bitcoin and other cryptocurrencies due to similar threats. The US, France, and Russia have now all expressed concerns regarding the threat that Libra would represent,” said Liu.

Though cryptocurrency itself is characterized by anonymity, the digital platforms that consumers use to make payments will be based on WhatsApp, Instagram, and Facebook.

“The Cambridge Analytica scandal exposed egregious missteps by Facebook — and users haven’t yet forgotten that breach of trust,” Liu added.

‘Libra’s’ documentation indicates that it has strengthened its data privacy protection mechanisms, but this will unlikely be enough to assuage deep concerns when it comes to Facebook’s ability to govern such a system and currency.

“Meanwhile, too much privacy will increase regulatory concerns about money laundering and tax avoidance,” the expert cautioned.

Facebook says its aim is to enable accessible and affordable digital payments for billions of people with ‘Libra’.

“While Facebook has a lofty vision for Libra, it already faces many rough challenges pertaining to privacy and regulation. India currently posits an excellent growth opportunity for fin-tech initiatives, primed from its booming digital payments push by the government,” said Prabhu Ram, Head, Industry Intelligence Group (IIG), CyberMedia Research.

It is no wonder then that in India Facebook, like its peers Google and Amazon, has been aiming to integrate payment capabilities into WhatsApp, allowing users to make and receive payments.

“However, with ‘Libra’, it will potentially run into rough weather with the Reserve Bank of India (RBI) which currently does not view cryptocurrency favorably,” Ram told IANS.

Just weeks ago, the media was awash with calls to break up Facebook and reduce its influence. Considering this background, the launch of the ‘Libra’ project seems brazen.

“But what is even more strange is Facebook’s decision to launch a cryptocurrency. Launching a traditional payment system to better compete with the likes of Alipay and WeChat Pay would have not attracted such ire from governments and would have probably had a better chance of success,” noted Liu.