After nearly a year of back and forth with regulators in developed markets, the Libra project by Facebook and its partners may become reality early next year.
According to the Financial Times, the Libra Association is planning to launch the much-delayed cryptocurrency in January 2021. The reason for the delay of the launch is that the Libra Association is waiting for the Swiss Financial Market Supervisory Authority to approve the digital currency. However, it will be a stripped-down version of the original Libra that will be released. It would also be backed one-on-one by the US dollar.
The Libra cryptocurrency was announced on 8 June 2019 as a developmental global cryptocurrency backed by a reserve of assets. Facebook had imagined that the Libra would be used mainly to transfer money between individuals in developing countries who lack access to traditional banks. Eventually, the goal will be to create the first truly mainstream cryptocurrency, a decentralised global form of payment that is as stable as the dollar, which can be used to buy anything and can support an entire range of financial products – from banking to loans to credit.
The Libra announcement soon drew the attention of the regulators in the United States of America and the European Union. Following the fierce pressure from regulators, the Calibra Network comprising of Facebook and over thirty partners soon began to lose some of the members. Within the space of two weeks after regulators called, members like Paypal, Visa, Mastercard, eBay, Stripe, and Mercado Pago quit the network. More members were to follow afterward.
Currently, the network has about 27 members. While the exact launch date in January is yet unknown, the Libra is expected to operate as a digital currency, providing an alternative to the US dollar and other currencies managed by foreign governments.
The news of the launch has created some excitement in the cryptocurrency market with prices of various cryptocurrencies rising. Bitcoin, the world’s largest cryptocurrency is near an all-time high at $19,345 driven by increased institutional investments.
Massive boost for investors’ confidence
The launch of the Libra is expected to sustain investors’ confidence in the cryptocurrency market. This is because of the quality companies joining Facebook to make the digital currency a reality.
The Libra has five essential features, the first being that it is built on a secure, scalable, and reliable blockchain. Secondly, it is a stablecoin backed by a reserve of assets. Third, it is governed by the independent Libra Association. Fourth, it uses the LibraBFT consensus mechanism. And finally, the smart contract coding is done through the “Move” programming language.
The Libra Association is an independent group organised by Facebook to manage the Libra cryptocurrency. The original plan is to have 100 members in the Libra Association before the launch, but there are 27 members currently in the group. Nearly all the members are non-crypto corporate entities.
According to the Libra White Paper, once the network launches, all the members of the Association will have the same commitments, privileges, and financial obligations as any other found member. All the peers will have equal governance power. Facebook has built a digital wallet called “Calibra” which will be used to interact with Libra.
For a market already attracting big names like Paypal, JP Morgan, etc, the inclusion of Facebook and other corporate entities under the Libra project would further boost the fortunes of the cryptocurrency market as a viable alternative to fiat currencies.
Release of world’s first CBDC
Libra could also fast-forward the release of the world’s first central bank digital currency (CBDC) according to some experts. During a webinar conference in November 2020, Douglas Arner, professor at the University of Hong Kong, noted that Facebook’s version of a global private stablecoin triggered the next stage of developments for CBDCs as banks viewed the Libra as a potential threat in remaining financially competitive.
China is already leading the race for CBDC with the launching of a test pilot for its own version of CBDC – the digital currency electronic payment (DCEP).
A comprehensive regulatory document for stablecoins
The launch of Libra could also see the release of comprehensive regulations for the cryptocurrency market. A draft G7 statement released in October 2020 says no global stablecoins – including Facebook Libra – can launch until the regulations are in place.
The Group of Seven developed countries including the United States, Canada, Japan, Germany, France, Italy, and Britain said while digital payments could improve access to financial services, cut inefficiencies and costs, they had to be appropriately supervised and regulated so that they would not undermine financial stability.
