Can Facebook’s Libra cryptocurrency survive the exodus?

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Seven of the founding members of the Libra Association have jumped ship amid increasing scrutiny by regulators

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17 October 2019 | 0

After the withdrawal of seven of the 29 founding members of the Libra Association, the governing council for Facebook’s planned global cryptocurrency, the project’s fate looks increasingly uncertain.

PayPal, Visa, Mastercard, eBay, Stripe, Mercado Pago and Brooking Holdings have backed away from participation on the Libra Association; their hands were forced when all members met Monday in Switzerland for formalise their commitment to the project.

“In many ways, PayPal, Visa and all the others took the only decision they sensibly could take under the circumstances,” Forrester vice president of research Martha Bennett said via e-mail. “Given the continued lack of regulatory engagement… and continued lack of detail on key points around Libra (the coin), governance of the network, management of the fund, etc., the risk of reputational damage was simply too great.”

Libra is currently scheduled to go live in 2020.

Dante Disparte, head of policy and communications for The Libra association, said via email that the council will not launch the global payment system “until questions and concerns by regulators are addressed.

“This is enshrined in our long launch runway, which has helped inform regulators, policymakers and other stakeholders around the world about our commitment to responsible financial innovation and strong oversight,” Disparte said. “Our mission of financial inclusion enjoys broad global support. Over 1,500 entities have proactively reached out to the association about joining.”

Industry experts and research analysts have speculated that Libra Association departures are the result of regulatory scrutiny of the cryptocurrency, especially over whether it can thwart money-laundering efforts and adhere to know-your-customer (KYC) government rules.

In separate statements after their departure, eBay and payment software provider Stripe said it ‘respects’ or ‘supports’ the vision of the Libra Association.

“However, eBay has made the decision to not move forward as a founding member. At this time, we are focused on rolling out eBay’s managed payments experience for our customers,” the company stated.

In September, French and German regulators argued that Libra could threaten the Euro’s value and unlawfully privatise money. Last year, the Reserve Bank of India (RBI), the country’s central bank, announced a ban on the use of cryptocurrencies by any regulated financial entity because of risks associated with it.

US lawmakers, including members of the House Committee on Financial Services, have also voiced concerns that Libra could enable money-laundering or other nefarious activities. Shortly after Libra was announced in June, the committee wrote Facebook CEO Mark Zuckerberg asking that he “cease implementation plans until regulators and Congress have an opportunity to examine” the issues and take action.

Other lawmakers encouraged Libra Association members to reconsider support of the project.

In an ongoing effort to allay US regulatory concerns, Zuckerberg is now expected to testify before the House Financial Services Committee on 23 October.

Unlike bitcoin, Ethereum and other cryptocurrencies that aren’t backed by fiat currency or other forms of stored value, a Libra coin would be backed 1:1 by real money.

“This means that for any unit of Libra to exist, there must be the equivalent value in its reserve,” Facebook’s crypto chief David Marcus wrote in a series of tweets defending the project. “As such, there’s no new money creation, which will strictly remain the province of sovereign Nations.”

Katie Haun, a partner with the law firm Andreessen Horowitz – a Libra Association founding member – reiterated that existing members would forge ahead with the project, tweeting after the meeting: “Even though some of the original members have changed, we remain committed to Libra’s mission.

“It’s also important to look at this project in the global context,” Haun tweeted in a separate post. “By attempting to block Libra before it’s even built, US policymakers risk ceding leadership over one of the most important emerging technologies.”

“I think between Zuckerberg’s statements and that the staff there are consumed with regulatory pushback, it’s not clear to me what direction they’ll take moving forward,” Avivah Litan, a vice president of research with Gartner, said in an earlier interview. “I think Libra could be delayed or trimmed down. I’d hope they can move forward in nations where there is no regulatory pushback.”

After the departure of Mastercard, Visa, and eBay last week, Marcus tweeted: “Of course, it’s not great news in the short term, but in a way it’s liberating. Stay tuned for more very soon. Change of this magnitude is hard. You know you’re on to something when so much pressure builds up.”

In a follow-up tweet, Marcus wrote there are now 22 official Libra Association members with “many more to come”.

The latest news of departures, however, has prompted people following the issue to create their own charts of who’s left the non-profit organisation.

IDG News Service

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