When Facebook announced its new cryptocurrency Libra along with it’s twenty or so huge investors, you could feel the collective global shudder by banks around the world.

What is Libra?

Libra is the name of a new cryptocurrency announced by Facebook that is built on blockchain technology, and will let you buy and sell things or transfer currency with no fees. It can be managed via digital wallets and accepted or traded at exchange points or participating businesses when going about your daily shopping. It will also be integrated with the Facebook app, Messenger app and WhatsApp using Facebook’s own digital wallet called Calibre.

The Libra Association has been set up as a non-profit to oversee the operations, with buy-ins from businesses who must meet credentials such as being recognised in the top 100 Business leaders, and research organizations like universities and nonprofits who meet the criteria were also invited to assist with Governance. Facebook recognised that there would be limited adoption of their currency if they solely owned and operated it.

According to their white paper, ‘The Libra Association is working to empower people around the world through the creation of a simple global currency’ and this is part of their ‘responsible finance innovation’ strategy.

How is Libra different to other Cryptocurrencies?

Unlike other digital currencies that can fluctuate wildly in value, Libra will not go up or down, it is designed to have stable value. This is because Libra will hold enough assets to back every transaction. Other cryptos like BitCoin are slow released with a set amount available which is why it can be worth $15k one day and $400, seven years ago. Libra is created and destroyed as it is used, so it won’t gain or drop in value, making it an appealing option for businesses and therefore consumers. It seems like the responsible older sister of the other cryptos.

What does it mean for financial inclusion?

For the almost two billion of underbanked or unbanked people, Libra can help overcome the lack of bank accounts, bank branches or the necessary documentation required to send or receive funds. Mobile phones with text service being the only connectivity needed and it will provide a simple and cheap way to send remittances from one country to another, including micro-payments. Blockchain technology helps overcome lack of credit rating and provides a record of transactions and transaction data, whilst a global currency is hugely beneficial for diaspora who support loved ones in areas of war, conflict or poverty. Those included in the Libra Governance like Mercy Corps have said it “can transform how aid is operated and delivered around the world — significantly increasing efficiency, transparency and accountability”.

What does Libra mean for banks?

Banks are already behind due to their ancient systems and legacy tech but Libra has just taken it to a whole new level. Cryptocurrency, whilst gaining in popularity, has not really been mainstream or on a scale that threatens the entire traditional banking system.  It has been too volatile for many businesses to accept it as currency and the user experience has been clunky. The Libra currency is built on the Libra Blockchain which is Open Source, suggesting they are ‘collaborating and innovating’ with the finance sector rather than trying to bypass the regulations. The threat to banks is really the reminder that they need to speed up their evolution.  Since they usually cannot create the platforms needed to keep up with customer demand and expectations, they need to partner up with fintech providers who can.

Facebook has smartly offered world leaders and influencers in online payments, blockchain, venture capital, communications and global non-profits a seat at the table, which helps to overcome the trust issues, but it also introduces ready-made e-commerce via the 90million businesses that have a Facebook presence.  By removing fees, putting a charitable spin on it, applying a slick user interface and simplifying how crypto is used, they also have a potential user base of more than 2 billion plus the WhatsApp users of over a billion. They have the recipe and ingredients for domination, but will it stick?

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