PayPal has announced that it is not going to be a part of the Switzerland-based Libra Association that is overseeing the introduction of Facebook’s Libra cryptocurrency.
What Is Libra?
Libra is a cryptocurrency, designed and coded by Facebook, that will enable payments to be made by a special phone app and by messaging services such as WhatsApp so that spending the new currency could be as easy and fast as texting. Libra was announced as being targeted at the 1.7 billion adults worldwide who do not have a bank account (unbanked).
Unlike other cryptocurrencies such as Bitcoin, Libra will offer the security from massive value fluctuation by being asset-backed and pegged to other currencies and it will not have a traditional bank ‘middleman’, therefore enabling fast and frictionless transactions.
Units of Libra units can be purchased via Libra’s platforms and stored it in a digital wallet called “Calibra”.
The Libra Association, which PayPal has just left, is a 28-member (now 27) association of multinational companies and non-profits, hoping to grow to 100 or more members. The Libra Association, based in Switzerland will be responsible for the management of Libra and members of the Association include Mastercard, eBay, Spotify, Uber, Vodafone, and a variety of charities such as Women’s World Banking.
Why Has PayPal Left?
PayPal has not given a clear reason why it has left the Libra Association, but there is speculation among some commentators that it may be due to PayPal wanting to distance its brand from the fact that regulators, particularly in Washington and Brussels, appear to be concerned that the Libra project could be seen as a means to bypass rules relating to money laundering and tax evasion. There is also speculation that PayPal may have been concerned that Facebook executives haven’t paid attention to PR that could counter much of the initial criticism of Libra.
PayPal has said, however, that “We remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future”.
There are also press reports that other Association members such as Mastercard, Visa, and digital payment platform and processor Stripe may be considering leaving the Libra Association due to concerns about the suggestions that Libra could potentially be used for money laundering to tax evasion.
France Says No
In September, France’s finance minister, Bruno Le Maire, said that the development of Facebook’s Libra cryptocurrency will be blocked in Europe unless concerns over risks to consumers and to the monetary systems of countries can be addressed.
Warnings and Concerns
Back in July, finance chiefs from the Group of Seven democracies warned that cryptocurrencies like Libra would have to address “serious regulatory and systemic concerns” before they would be allowed. Also, President Trump has said in a Tweet that he isn’t a fan of Libra, and central bank chiefs, including Mark Carney have also expressed concerns about Libra.
Some sceptical commentators have also noted that Libra may be less about money and blockchain anyway but more about gathering more information about the identity of clients.
What Does This Mean For Your Business?
Libra is now coming under increased scrutiny, and the mention of phrases like ‘money laundering’ or ‘tax evasion’ appear to be enough to scare some of the big financial brands away from the Libra project, at least until regulators’ questions have been answered and the heat has died down. The fact that a big name like PayPal has pulled out, with other big names such as Mastercard and Visa looking likely to follow is undoubtedly going to be a big blow to the image and credibility of Libra, although the Libra Association still has 25+ other members and is hoping to grow this to include 100 or so other big names.
Countries and banks are clearly worried by the possible shift in control to big business that Libra could bring, and this shift in control could have a number of effects on the business environment and the economies of countries if Libra proves to be popular.
Even though Libra users are not intended to be businesses, if Libra does help the ‘unbanked’ this could have a knock-on effect in helping that segment of society to buy more goods and services, thereby helping businesses and the economy.