Facebook & # 39; s cryptocurrency Libra claims to solve a very dire problem: helping people without access to banks. I have my doubts about how helpful Libra will be.
According to the white paper, the the whole point of Libra is "enabling a simple global currency and financial infrastructure that enables billions of people". The company claims that LIbra will give people access to a cheaper system of money transfers. Facebook calls a statistic from 1.7 billion people worldwide that do not have access to financial institutions, a statistic from the Global findex database of the World Bank 2017. Of these people, around 1 billion have mobile phones and 500 million have internet access. Insights such as these have led to the M-Pesa telephone payment system, which is already active in more than 10 countries and does not use cryptocurrency.
Let's start with the obvious missing statistics: we don't know how many people have Facebook accounts, but no bank accounts.
According to the report quoted by Facebook, half of all adults who do not have a bank account live in only seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan. It is difficult to see how Libra got off the ground in four of these countries.
Facebook is banned in China. Some countries, such as Pakistan, Indonesia, and Bangladeshhave temporarily blocked Facebook for certain periods, potentially limiting the effectiveness of money associated with the app. Facebook mentions this as a risk factor for its activities quarterly declaration: "Public authorities in other countries may attempt to restrict users' access to our products if they consider us to be in violation of their laws or a threat to public security or for other reasons, and certain of our products are restricted by governments in other countries. countries from time to time. "
That is not all: many of these countries have laws on cryptocurrency. (Yes, I know it is debatable whether Libra qualifies as a cryptocurrency or not, but Facebook calls Libra a cryptocurrency, so I assume that cryptocurrency laws apply.) India & # 39; s current regulations average Libra cannot work in the country. Pakistan is consider regulation for cryptocurrencies, but they are currently prohibited. Cryptocurrency is also implicitly prohibited in Bangladesh and China.
The big win here is possibly Indonesia, that just legalized trade in cryptocurrencies, and wax too called by Facebook in the most recent quarterly application as an area of growing daily active users.
But the majority of these countries have major obstacles to the adoption of the Libra. This could explain why Libra's founding partners are not based in one of these countries. (MercadoPago, an online payment company that is also one of the partners, is active in Latin America and is based in Argentina.) the World Bank statistics. It is not impossible to confiscate something like Libra, but it requires local support; most countries have a growing number of banking rules. It does not look like Libra has yet called for local support in the places where it is most important.
The white paper contains some details about the Libra architecture. Yet there is little discussion about it why people don't have bank accounts. According to the World Bank data provided by Facebook, almost two-thirds of people who do not have bank accounts say it is because they do not have enough money to open one. Libra does not solve that problem. A third of people who don't have a bank account said they don't need one. No Libra is required either.
Libra only solves the less popular reasons why people don't have bank accounts. About a quarter of respondents said that the high and unexpected costs of banks were at least part of the reason why they had no accounts; distance to a bank was another barrier for another 20 percent. So these people seem to be the target audience of Libra.
However, there is a kind of subtle hitch: to use Libra, you have to buy Libra. I am not the first to notice it; the Financial times" Brendan Greeley wrote about it the same problem. The papers themselves seem to regard their end user as someone like me, a lady with a bank account and a credit card. The process of converting to Libra is almost described how I would experience it: you log in and give them your credit card number or bank account number.
The problem is that people who have no banks, have no bank account numbers and also have no credit cards. They have cash. "There is nothing about how Libra will lower the costs of converting fiat cash into Libra money, that is both the essential challenge of consumer banking and an explicit part of the problem definition of Libra, "Greeley writes." Check-in places charge horrible costs, but they are willing to convert physical checks into physical cash upon request and physical cash into transfers.
For mobile banking, the application has been a patchwork. M-Pesa has been successful in Kenya. But in Nigeria, people still prefer cash because they are worried if their phones are stolen, their money is also gone. This is a problem of social norms, not technology. Conflicts between telecommunications and banks paralyzed mobile banking applications in Nigeria. This is also not a problem that you can solve through engineering. There are also other, more everyday issues when it comes to mobile banking, such as the costs of having inactive customers.
It is not clear to me why a mobile payment service such as the one proposed by Facebook does not require any cryptocurrency at all. It seems like a non-starter in many of the markets where mobile payments are most needed. And Libra does not address the biggest problem that the documentation says is the issue.
From the documentation provided by Facebook, a reasonable person can conclude that the problem is entirely a smoke screen. Libra is not intended for people without bank accounts; it is meant for people who already have money. Facebook is a company; companies must earn money; as we have seen, people without bank accounts usually have no money.
There is still a kink in the documentation, which Coindesk & # 39; s Ian Allison saw it for the first time: "An additional goal of the association is to develop and promote an open identity standard. We believe that decentralized and portable digital identity is a prerequisite for financial integration and competition." If Facebook's problem is a sham, then the portable digital identity another plausible endgame.
Look, it's good that Facebook is building a money app for the privileged class. That is typical Facebook! But I don't believe Facebook does this the greater good. If you read the documentation, it's hard to escape the conclusion that all Facebook is working on a new way to determine its own wallet – whether it's Libra or an open identity standard. Or, you know, both.