Facebook's™ plan to launch a global currency

In mid-June 2019 social networking website Facebook™ announced plans to launch a global currency called Libra™, in 2020. Libra™ is currently being built on blockchain, the same technology used by cryptocurrencies like Bitcoin™. Before discounting Libra™ as an attention-seeking play by Facebook™, be aware it has the backing of heavyweights like MasterCard™, PayPal™, Uber™ and Andreessen Horowitz™. 

The announcement has however sparked worldwide concerns over regulation, data privacy and protection and the potential to disrupt financial and crypto markets. So it is worth examining the fundamentals of Libra™ to understand what it is and what it isn’t.

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“Libra’s™ mission is to enable a simple global currency and financial infrastructure that empowers billions of people.”

How Libra™ differs from Bitcoin™

Libra™, like Bitcoin™, is a blockchain-based cryptocurrency. But there the similarities end. Bitcoin’s™ value is based on risk and scarcity and can be ‘mined’. Libra’s™ value however will be tied to, and backed by, a basket of bank deposits and government securities on a one-for-one basis.

While the early backers of Libra™ have yet to determine its starting value, it will likely be something close to a dollar, pound or Euro.

World-class transaction speed

As befits a global currency, Libra™ will process 1,000 transactions per second. For context, Bitcoin™ and Ethereum™ process 7 and 15 transactions per second respectively. The superior speed is due to fewer validator nodes and a 2/3 consensus mechanism. 

Libra™ also boasts its own new programming language, called Move, to overcome flaws in existing blockchain coding.

Transaction speeds per second: Libra 100, Etherium 15, Bitcoin 7

Trade in local currency, using future third-party apps

Facebook-owned Calibra is building the customer-facing wallet through which WhatsApp™ and Facebook™ Messenger™ will deploy the new digital currency. The plan is that people can buy and sell Libra™ with their local fiat currency, initially through Calibra, with third-party apps to follow.

Icon depicting global currencies and a smartphone.

Big business sees the potential

Visa™, eBay™ and Vodafone™ are among the 28 venture capitalists, technology players and not-for-profits that have subscribed the required US$10 million to become a voting board member of the Libra™ Association, Libra’s™ not-for-profit governing body. A further 72 board seats are available. Facebook will have two votes, given it owns both Libra™ and Calibra™. 

The Libra™ Association has established itself in Switzerland which has adopted a relatively light touch approach to regulating cryptocurrencies.

Currently backed by 28 global organisations.

“This approach can deliver a giant leap forward toward a lower-cost, more accessible, more connected global financial system.”

A cityscape is crisscrossed with a digital matrix grid that makes bright connections.

Empowering the globally unbanked

Libra™ aspires to offer the 1.7 billion people who live outside formal financial institutions a stable, high-trust form of digital currency. With Facebook’s™ global penetration, anyone with a $40 smartphone will be able to move Libra™ currency around in a low-cost way. This also explains the early membership of not-for-profits like Mercy Corps™ and Women’s World Banking™.

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Icon depicting Libra symbols flying around the globe.

About the Author

Elise Fairbairn is the Managing Director of Transaction Banking Solutions, Institutional Banking & Markets at Commonwealth Bank. Elise has extensive experience in the banking industry, spanning a variety of senior roles that have covered operations, front-line client relationship management, strategy, leading large scale business transformations, client research and transactional & trade, sales. Find out more about her on her LinkedIn page.

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Disclaimer: This information is published solely for information purposes. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian credit licence 234945.