Facebook Unveils Cryptocurrency Libra in Bid to Reshape Finance

Facebook Inc. unveiled plans to launch a cryptocurrency in a move that could diversify its business from advertising while expanding into financial services long dominated by Wall Street.

The tech giant illustrated how its digital currency, Libra, might appear on a smartphone. PHOTO: FACEBOOK

The tech giant illustrated how its digital currency, Libra, might appear on a smartphone. PHOTO: FACEBOOK

The cryptocurrency, called Libra, will be a secure blockchain-based payment system backed by hard assets and designed for ordinary users, making it among the boldest efforts yet to bring digital currencies into the mainstream.

Facing continuing scrutiny of its privacy practices, Facebook introduced Libra in a manner that seemed intended in part to head off potential regulatory concerns. It said it is creating a subsidiary, called Calibra, that would be governed with the help of external partners, to ensure “the separation between social and financial data.” Calibra will offer a crypto wallet—a digital app that can be used to pay for items online and send money—using Libra.

Facebook on Tuesday named a series of corporate partners—including financial-services heavyweights Mastercard Inc. andPayPal Holdings Inc. and tech giants Uber Technologies Inc. and Spotify Technology SA —that it said would help it create a “secure, scalable and reliable” cryptocurrency. The Wall Street Journal reported in May that the initiative involved developing a “stablecoin”—a digital asset backed by a basket of global currencies or other investments—unlike other cryptocurrencies, such as bitcoin, whose values can fluctuate sharply.

Facebook, which has worked quietly on blockchain-based payments for more than a year in an effort led by former PayPal President David Marcus, said Libra would be available by 2020 on its Messenger and WhatsApp services and as a stand-alone app. The company has broad ambitions for the project and its use by the social platform’s 2.4 billion monthly active users. Facebook envisions Libra being used to make everyday financial transactions like paying bills, making retail purchases and paying for public transport.

One of the Libra network’s early goals would be to provide basic financial services to people around the world who lack bank accounts and to save some of the $25 billion “lost by migrants every year through remittance fees,” the company said in a blog post Tuesday.

Early reactions from bank analysts covering Facebook were enthusiastic, in part because the Libra project would help the company move away from a near-complete reliance on targeted advertising. Though highly successful, that business model has drawn criticism for Facebook’s privacy practices and its handling of misinformation on public platforms. The company is shifting toward more private communications, and payments could provide a way to make money in those channels, though Facebook didn’t specify how it expects to generate revenue from Libra.

JPMorgan ’s Doug Anmuth said Libra would help Facebook diversify its revenue sources “while also empowering billions of people.” In a note to clients after Facebook’s Libra disclosures, Royal Bank of Canada analysts Mark Mahaney and Zachary Schwartzman described the project as the foundation for fundamental changes to the digital consumer economy.

“In terms of scale and importance, we believe this new financial infrastructure could be viewed similar to Apple ’s introduction of iOS to developers over a decade ago,” they said.

Others questioned Libra’s potential advantages over other digital-payments services.

“What makes this better than what exists?” asked Raina Haque, a professor at Wake Forest University’s law school who said it is too early to say whether Facebook’s plan threatens the existing global payments industry.

In an original WSJ documentary, markets reporter Steven Russolillo ventures to Japan and Hong Kong to explore the universe of cryptocurrencies. His mission: create WSJCoin, a virtual token for the newspaper industry.

A significant portion of Libra’s fate will rest with global policy makers.

French Finance Minister Bruno Le Maire said that Facebook is free to issue a transaction tool but that Libra shouldn’t replace sovereign currencies, citing a risk that such a currency could be used to finance terrorism.

“Sovereignty must remain in the hands of states, not private companies that respond to private interests,” he said on French radio Tuesday. Mr. Le Maire said he would ask the central bank governors of G-7 countries to prepare a report on what guarantees to demand from Facebook to avoid such risks ahead of a meeting of finance ministers planned for mid-July in Chantilly, north of Paris.

U.S. lawmakers called for hearings on Facebook’s cryptocurrency plans, and Democrats and Republicans on the House Financial Services Committee raised questions about the move. The panel’s chairwoman, Rep. Maxine Waters (D., Calif.), asked the social-media company to put the project on hold “until Congress and regulators have the opportunity to examine these issues and take action.”

Much of Libra’s future could also depend on which U.S. regulatory bodies claim authority to police it.

The Securities and Exchange Commission, Wall Street’s main overseer, has emerged as the most robust U.S. regulator of cryptocurrency projects, but its authority covers only assets that are deemed to be securities. That typically means investments that are made with the expectation of profits. The investment’s value also has to be tied to an enterprise that backs it and sought to raise money by selling it.

The Commodity Futures Trading Commission also polices cryptocurrencies, focusing on those that are deemed commodities, although that authority is limited in the spot market to going after fraud or manipulation. The CFTC has extensive regulatory authority over derivatives such as currency futures and swaps.

To the extent Facebook can persuade Washington that Libra is a new type of currency, it could be exempt from SEC supervision, whose oversight model involves elaborate disclosures to investors and collaboration with regulated market gatekeepers such as auditors, securities lawyers and broker-dealers.

Facebook employees met with SEC Chairman Jay Clayton and some of his staff members several months ago. They discussed cryptocurrencies, among other topics, but didn’t address Libra specifically, according to a person familiar with the matter. Facebook executives have also sought a meeting with the chairman of the U.S. Commodity Futures Trading Commission, Christopher Giancarlo. The meeting hasn’t happened yet, a person familiar with the matter said.

Should it act as a money transmitter, Facebook would have to comply with U.S. anti-money-laundering rules, verifying who is sending transactions through its platform and reporting suspicious transactions to the government. It also would have to form an internal anti-money-laundering program, train key personnel and conduct independent compliance reviews. The Treasury Department’s Financial Crimes Enforcement Network has said those requirements extend to cryptocurrency companies.

How Libra would differ from existing digital money-transfer technologies remains unclear. At least initially, it will neither be fully decentralized nor fully anonymous, two of bitcoin’s defining anarchic features.

While both bitcoin and Libra are essentially digital versions of cash designed to allow users to exchange value online, there are major differences. Facebook is looking to build a payments network around Libra by creating an online ecosystem on which users can buy things and pay each other. Bitcoin, though initially conceived as a payment mechanism, has evolved into a kind of digital gold used to store value rather than exchange it.

Libra also will be set up to avoid the wild price swings that have plagued bitcoin. It will be backed by a basket of global currencies and other stable assets, making it far less likely to experience the volatility of other cryptocurrencies that aren’t pegged to anything.


Các tin, bài viết khác

Đọc nhiều nhất