Facebook cryptocurrency, Libra, will be unveiled next year but what does this hugely ambitious project mean to Africa.
Why would a massive centralized organization like Facebook that thrives on exercising control of the data of its 2 billion users across the globe, express interest in the digital currency? After all, blockchain—the technology that underpins cryptocurrency—was invented to circumvent centralized power and control.
What is Facebook Libra Cryptocurrency?
Facebook Libra cryptocurrency is a new digital currency that will enable users to make payments via Facebook’s apps and WhatsApp. The currency is independently-managed and backed by real assets. Facebook says Libra will grow to become globally accepted and adopted—ultimately enabling the social media giant to achieve its goal of “empowering” the unbanked populations around the world. Given that the majority of Facebook users come from Africa, this move could only mean one thing. Facebook wants to be the future of money in the region.
Already the project has attracted big players in payments such as PayPal, Visa, Uber, Lyft and major venture capital firms. But there are still many questions regarding the principal purpose of Libra. One that Africa is asking is—why do we need a new global currency and do we really want it from Facebook?
Complementing or competing with Mpesa?
According to Facebook, Libra cryptocurrency would allow people who do not have a bank account to send and receive payments inexpensively. The problem is that there are already several firms in Africa addressing this problem. Mpesa, for example, is a global leader in mobile money transfer and has made significant progress connecting the unbanked to the financial system. The reason why Mpesa has established itself so strongly in the global mobile payments industry is it has trust and credibility. Facebook, however, still faces reputation issues especially those dealing with data privacy. Skeptics recall the controversial Free Basics service Facebook launched last year that failed to take flight after it was criticized in India as a vehicle solely designed to promote the interests of Facebook.
On the privacy concerns, Facebook says its Calibra subsidiary will keep financial and social data strictly separate and users will not be targeted with adverts based on their spending habits. But then again, it is a Facebook-led initiative!
Is Facebook trying to disrupt remittances?
It’s also worth noting that remittances from African populations abroad are an important and growing source of foreign funds for African countries. Remittances to Sub-Saharan Africa grew to $46 billion in 2018 and the World Bank predicts it will keep increasing at 4.2 percent this year.
Despite the remarkable increase in global remittances, the average cost of remitting is still high, particularly in Sub-Saharan Africa. Facebook wants to disrupt the traditional remittances industry by bringing costs down for its African-based users. It says transactions would be at “low to no cost”, although Facebook is expected to take a small commission on every payment made through its platforms.
If Libra will allow people to send money from their phones with ease like they send text, then it will prove very attractive.
What challenges does Facebook’s Libra face?
There are some issues which Facebook must address before it can achieve that goal. The first one concerns about compliance, which can be an onerous and expensive business. It is not yet clear how Facebook will navigate the complex process of verifying the identity of people to comply with anti-laundering regulations. Added to that is the tight regulations by many African countries that restrict the use of cryptocurrencies within their jurisdictions. And with Facebook saying Libra will be “global and instantaneous” as the original cryptocurrency, this could come as unwelcoming to governments.
In addition, there is still some skepticism among Africans about using digital currency to make payments—often preferring to use cash instead. So it remains to be seen whether people, will trust Facebook enough to start changing their cash for Libra.
Spearheading blockchain adoption
One positive that will come out of this Facebook cryptocurrency initiative is helping to bring blockchain and digital currencies mainstream. If Facebook can prove that Libra works, it will definitely boost the mainstream adoption of cryptocurrency in Africa. As it stands, the Libra blockchain is still under development and it’s not yet clear how the system will work.