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Facebook’s Libra tremendous threat to financial systems is too serious to be left unopposed

Facebook has been asked to halt its crypto plans — again

The US House Financial Services Committee has written Facebook a letter asking the tech giant to put a hold on the development of its crypto, Libra, per Business Insider.

Libra EcosystemBusiness Insider Intelligence

 They asked to impose a moratorium on Libra until regulators and Congress have had time to explore concerns about the project. Concerns include risk of hacking, data security, and global financial security.

The letter also stresses that failure to cease the project before regulators can explore it appropriately could lead to a new Swiss-based financial system that's too big to fail. This follows a plethora of other regulators and lawmakers voicing concerns about the project.

Here's what it means: Concerns around Libra are valid, but Facebook is already looking to get licensed appropriately.

  • Consumer money could be at substantial risk under Facebook's project. Consumers using Facebook's digital wallet, Calibra, would potentially store trillions of dollars without depository insurance, putting their financial stability at risk. Additionally, Libra's high profile in the news makes Calibra a big target for potential hacks. During the first three quarters of 2018 alone, hackers stole nearly $1 billion from cryptocurrency exchanges
  • Facebook has already been busy applying for licenses, but the outcome is not yet certain. Calibra has applied for money-transfer licenses in the US and registered with the US Financial Crimes and Enforcement Network (FinCEN) as a money services business, per Reuters.  

Facebook sees Calibra as a stepping stone to financial services

If Facebook's crypto and digital wallet play gets off to a solid start, it could empower Facebook to begin offering more financial services in the future, Calibra VP of Product Kevin Weil said in an interview with Stratechery cited by CNBC.

For context, Calibra is a recently introduced subsidiary of Facebook that's tasked with developing a digital wallet for Facebook's forthcoming cryptocurrency, Libra.

Weil suggested that Calibra's launch could set the stage for Facebook to offer financial services like credit, and that it could increase traffic on Facebook's own commerce engines, like Marketplace and checkout.

  • Calibra could have wide reach via Facebook's network, including customers excluded from traditional financial services. Facebook boasts 38 billion monthly active users (MAU), giving Calibra an immense audience that can jumpstart its adoption once it launches. And with 2.7 billion consumers using at least one of Facebook, Instagram, WhatsApp, and Facebook Messenger a month, it has a number of avenues to reach its huge user base.  
  • Facebook's wide reach could give Calibra an audience for new services. If Calibra proves popular among users of Facebook's family of platforms, it'll have the opportunity to add other services, like credit, for an already engaged user base in an effort to become their leading financial services provider. In Kenya, only 27% of consumers had access to formal financial services before mobile money service M-Pesa launched in 2007, and that share rose to 75% by 2017, for example.

 Facebook has been building out its commerce capabilities by adding native checkout experiences to Instagram and Facebook.

Now that Facebook is pivoting to focus on privacy, payments represent a valuable opportunity, both because it could leverage data security and privacy to become an attractive payment option and because payments represent a source of revenue to complement ad-related earnings.


The California-based tech giant’s announcement last month of its plans to issue a digital currency prompted global central banks including the European Central Bank and the Bank of England to voice concerns. Though Facebook itself is not generally accessible in China, the PBOC is also signaling that it is worried by issuing a public response.

Mu said the central bank’s research team tested Libra’s code and found it’s “still in an initial stage and the quality of the code isn’t stable.” He also said it’s questionable whether Libra would indeed use blockchain technology, because it can’t meet the high concurrent transaction requirements necessary for retail sales scenarios.

The PBOC has been working on developing its own digital legal tender, but hasn’t announced a time table for issuing any such currency.

Here’s a detailed list of Mu’s views on Libra:

FX Risks

  • When Libra is used in developing economies where the local currency is volatile, the public will have an incentive to exchange large amounts of local currency into Libra, sparking depreciation in domestic currencies.
  • The IMF or other international organizations will have oversee the exchange rate mechanism among the various currencies in Libra’s basket, else countries will engage in competitive easing in order to exchange more Libra.

Monetary Policy

  • When Libra is widely used in payments, transactions will be priced in Libra, and financial products, such as credit sales and consumer loans, could be granted in Libra too. The reserves that back up Libra’s original equivalent purchase of fiat currencies, won’t be enough to secure the value of all the Libra created, and it won’t be enough to keep the Libra stable.

Know Your Customer

  • Libra expects its users and participating institutions to observe existing “know your customer” rules and anti-money laundering or anti-terrorist financing regulations, but it had offered little information on its own responsibilities on these issues