Oct 16, 2019 - Technology

Facebook pushes forward with Libra despite distrust

Illustration: Aïda Amer/Axios

Facebook is pushing forward with its Libra digital currency despite recent public departures by a quarter of the members of the currency's governing body.

The state of play: It expects to launch with more than 100 members, including some banks, which have been noticeably absent from the list of current partners, Libra co-creator David Marcus said Wednesday.

What they're saying: "We absolutely need banks, and I believe that banks will ultimately join," Marcus said in remarks at the IMF's fall meetings.

  • "It’s harder for very large, regulated entities to take an active part in this fight right now, in light of the pressures."

Those pressures include pushback from lawmakers around the globe — in particular in the U.S. and eurozone — who say Libra could endanger the health of the global economy.

  • Sens. Sherrod Brown (D-Ohio) and Brian Schatz (D-Hawaii) have sent letters to companies in Libra's governing counsel urging them to "carefully consider" their decision.
  • France and Germany have already agreed to pre-emptively block Libra in their countries.

Why it matters: Libra is an attempt to provide fast international and cross-border payment options for Facebook's 2.7 billion users at a lower cost than is currently available.

  • However, it has faced significant opposition from central banks and legislators to the point that some of its initial partners, including Paypal, Visa, Stripe and Mastercard have dropped out of the project, endangering its future.

The big picture: Because of Facebook's ubiquity, bolstered by its acquisitions of Instagram and Whatsapp, Libra could launch immediately to billions of people, potentially displacing the currencies of some sovereign nations —  even large ones. That could put a private company in charge of controlling the money supply for many of the world's citizens.

  • Facebook would then be in the unique and potentially dangerous position of being a systemically important entity to the entire world's financial system.

Driving the news: Marcus defended Libra and made a case for its necessity on Wednesday.

  • "The status quo is not an option. Whether it’s Libra or something else, the world is going to change in a profound way," he said.
  • His latest comments came during a panel discussion that included Bank of England governor Mark Carney, former chair of the Council of Economic Advisers Jason Furman, and Nandan Nilekani, cofounder and chair of Infosys Technologies Limited, which helped create India's digital payments system.

Where it stands: The Libra project is alive, but it's unclear how healthy it is. Marcus said Wednesday the Libra Association now has 21 members and there are 1,600 companies that have expressed interest in being a part of the project.

  • Carney, the lone central banker on the panel, said Libra still has a long way to go and a number of questions to answer, including how the currency would be backed, what it's backed by and how revenues would be created to cover the cost of the system.
  • There are also a host of privacy and operations issues that will need to be stress tested, he said.

The bottom line: Furman, who served in the Obama administration, summarized the general feeling of unease among regulators about Facebook leading the way, making light of the company's previous motto to "move fast and break things."

  • "When a lot of these companies [in the digital currency space] first started they were small and this world was like the Wild West, so they could be forgiven when they break things."
  • "But we can’t have a break-things-and-fix-it-later ethos in the global financial system."

Go deeper: Ahead of Zuckerberg testimony, new setbacks for Libra

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