Facebook Libra has come under increased scrutiny ever since Facebook revealed plans to launch the digital currency a few months ago.
Libra has been a hot topic of conversation all around the world, including Africa. Kenya’s central bank chief Dr. Patrick Njoroge recently said that Kenya is still far from designing regulations for cryptocurrency. He singled out Libra in particular, saying
“We are still miles away from having solutions to those things (cryptocurrency). But I know there’s a lot of interest particularly with the new product that Facebook has recently announced.”
African governments are deeply suspicious of cryptocurrencies—choosing to ban digital currencies outright instead of developing regulatory frameworks to support their use. The long list of countries which have, in some way or another, prohibited the use of cryptocurrencies includes Kenya, Ethiopia, Nigeria, and Zimbabwe.
Even Zimbabwe that abandoned its own currency for 10 years because of hyperinflation, has been skeptical of Bitcoin and related cryptocurrency. The argument has been that the idealised notion of the cryptocurrency does not adequately take into account the very real limitations and security risks.
In the US, lawmakers have increasingly opposed Libra stating that the launch should be paused until Facebook assures Congress that Libra has adequate measures in place to prevent money laundering and protect consumers’ data. And now Facebook CEO Mark Zuckerberg must defend the plans before the US lawmakers for the third time at a hearing on October 23.
Regulators across Europe have also raised multiple concerns over Libra, including fears that the digital currency could end up influencing the monetary policies of other countries.
As an example, many people living in Africa rely on remittance payments from citizens working abroad, though such transfers are subject to high fees. If Facebook were to make people in those countries switch from MPesa to Libra, for instance, it would not only disrupt the remittances industry but also affect the economy of an entire developing nation. This explains why supervising Libra is highly necessary.
A recent paper looking at the regulatory stumbling blocks in Facebook Libra’s path concluded that Libra will need tight regulation and lots of licensing. For example, Facebook will need to apply for a license in any county where it wants to offer Calibra as a payment service. Obtaining those licenses would imply that Facebook has adequately demonstrated that it can stop money laundering and terrorist activities from its platform.
Payment giants withdraw
By the time Zuckerberg will be testifying about Libra, it will be exactly 17 days since PayPal became the first company to pull out of the Libra Association— the consortium of businesses backing the project.
The Libra Association had this to say after PayPal bowed out:
“We recognize that change is hard, and that each organization that started this journey will have to make its own assessment of risks and rewards of being committed to seeing through the change that Libra promises.”
While PayPal did not specify what prompted it to back out of the project, its withdrawal widely sent ripples across the group. Mastercard, eBay, Visa, Mercado Pago, and Stripe all pulled out in quick succession from the project.
Their withdrawal represents a huge blow to Facebook’s plan to launch the digital currency next year. It also means that of the 28 founding members of the Libra Association, just one, Pay U, out of the six payments-related firms remains.
It is believed that the payments firms quit Libra due to letters sent to them by two US senators that suggested that they may not have been fully aware of the regulatory risks inherent in the project.
But the Libra Association appears to be unfazed by their exit choosing instead to focus on the upcoming Libra Council meeting, to be held tomorrow October, 14.
Could Libra be stopped from ever launching? No one really knows for sure. But what we do know is that things are getting murkier every day with Libra and doubts are being cast as to whether the project will ever come to fruition.