When Facebook announced its intention to create the Libra coin, the world had expected a smooth ride to the delivery of the project. However, within months of the announcement, the project became shrouded in controversies. With the social network’s influence and financial capacity, everyone expected the government of the day to approve the plan quickly, but that was not to be.
The project has since faced a lot of scrutiny from the United States government, financial institutions, as well as other regional governments. Amid the uncertainty enveloping the project, the major payment partners have finally started pulling out one after the other. Notably, all the payment partners have deserted the Libra.
First, it was PayPal pulling out and then followed by MasterCard, Visa, eBay, Mercado Pago, and stripe, as well as Booking Holdings. But why are they leaving the Libra in the lurch?
So far, Libra has been subjected to regulatory tests and has failed to make a definite commitment regarding adhering strictly to the laws expected to govern its activities. Mark Zuckerberg is to appear before congressional committees to clear the grey areas regarding the coin before the congress can approve the takeoff of the currency.
However, while backing out of the project, Visa had announced that,
Visa has decided not to join the Libra Association at this time. We will continue to evaluate, and our ultimate decision will be determined by a number of factors, including the Association’s ability to fully satisfy all requisite regulatory expectations.
U.S. Congress jittery over the project
The U.S. congress knows the implications of allowing Libra to takeoff without formulating the necessary frameworks to govern its activities. Due to the perceived risk posed by the Libra project, congress is asking Facebook to put a hold on the project.
Congresswoman Maxine Waters specifically requested Facebook to stop further development of the coin until a hearing can be held.
Representative Patrick McHenry, of the Republican Party, had earlier written a letter to Maxine Waters, expressing his concerns about the Libra Network project. According to him,
We know there are many open questions as to the scope and scale of the project and how it will conform to our global financial regulatory framework.
He went further to say that,
It is incumbent upon us as policymakers to understand Project Libra. We need to go beyond the rumors and speculations and provide a forum to assess this project and its potential unprecedented impact on the global financial system.
Bank of England cautious
The Bank of England is towing the road of caution. In its October Financial Policy and Summary report, the bank maintained its stand on what it needs to approve the Libra. Though it called the payment network “systemically important payment system,” it, however, said,
The FPC judges that such a system would need to meet the highest standards of resilience and be subject to appropriate supervisory oversight.
G7 Suspicious of Libra
Various national governments are not the only ones wary of Libra, the G7 also is. In an interview with EURACTIV.com, French finance minister, Bruno Le Maire, said that,
We will not accept that Libra is transformed into a sovereign currency that can endanger financial stability.
The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed.
Fears of Libra becoming Sovereign Currency
One primary concern that has put so much pressure on the Libra is the possibility of it competing with states’ currencies. With the size of Facebook users, allowing floating its currency might mean giving it the liberty to become a private state.
At the G7 meeting, Bruno Le Maire said emphatically,
My determination to make sure that Facebook’s … Libra project does not become a sovereign currency that could compete with the currency of states is … absolute,
Le Maire said in a speech to the French Senate Thursday, “Because I will never accept that corporations could become private states”.
It is, therefore, evident to the payment partners that Libra might never see the light of day, following high-level objections to it, hence the pull-out.
Privacy concerns and Consumer Protection
Another reason for raising eyebrows against the Libra is because of privacy concerns and Facebook’s consumer protection issues. There have been outrages regarding the social network’s failure to protect the privacy of its users, and complaints that it sold users’ data to advertising companies.
At a congressional committee, Federal Reserve Chairman, Jerome Powell said that,
Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability.
The Fed set up a working group to further examine the project and see what prospects it holds.
Risk of money laundering and terrorist financing
Fears of Libra’s possible use as a conduit for money laundering and terrorism financing, also means that it has to pass through more regulatory standards. This has further led to the loss of confidence on the side of these partners.
During a recent visit to the Swiss capital, the U.S. Under Secretary of Terrorism and Financial Intelligence Sigal Mandelker stated that,
Whether it’s bitcoin, Ethereum, Libra, our message is the same to all of these companies: anti-money laundering and combating the financing of terrorism has to be built into your design from the get-go.
Though Facebook’s Libra project has gone ahead to announce its 21-member council, the controversies surrounding the project still linger. Nobody is sure how long it is going to take to resolve and if Facebook will be able to lobby the congress to approve the project. The regulatory challenges, G7’s uneasiness, privacy concerns, and many other unresolved issues have forced the payment partners into backing out of the project. How long the remaining partners would stay is yet to be seen. The future of Libra remains bleak, though anything is capable of changing at any time.