In June 2019, Facebook (NASDAQ:FB) shared its dream of a cryptocurrency that it hoped could change the world. Facebook unveiled Libra with 28 major corporate partners. By the end of October, however, a quarter of Libra’s original partners, led by PayPal (NASDAQ:PYPL), had dropped out.
Although Facebook had hoped to launch Libra this year, the project continues to face strong headwinds. Libra has particularly faced opposition from financial regulators, who expressed concern about its potential effect on the global financial system.
As a cryptocurrency, Libra shares the same space as Bitcoin. However, Facebook and its partners do not envision Libra being Bitcoin with another name, which a Libra executive clarified at CES 2020 (Consumer Electronics Show).
Facebook’s Libra and Bitcoin have different roles
On Tuesday, Dante Disparte, the Libra Association’s vice chair, told a CES 2020 panel the differences between Libra and Bitcoin. According to a CoinDesk report, Disparte said, “Bitcoin as an asset class has proven that mathematical scarcity can support an incredibly exciting asset.” Disparte added, “It’s not a means of payment. It just isn’t.” Unlike Bitcoin, Libra would have a stable value, as it would be backed by some of the world’s largest fiat currencies.
The Libra Association is the group of Libra corporate members that would operate the cryptocurrency. The association has been running Libra transaction tests in preparation for its launch. Although it is seeking regulatory approval for Libra’s launch, it still faces several hurdles. Switzerland’s government isn’t ready to approve Libra in its current form. The Libra Association is headquartered in Switzerland.
Recently, European Central Bank official Jens Weidmann urged European banks to develop cheaper and faster money transfer solutions. According to a January 2 Bloomberg report, Weidmann wants these solutions to discourage demand for private digital currencies such as Facebook’s Libra.
Facebook looks to address financial inclusion issue
Facebook’s vision is that Libra would become a global digital currency that could streamline and reduce the costs of everyday transactions. In addition, Facebook hopes that Libra can open up the formal financial system to more people who are currently unbanked. The World Bank estimates that nearly 2 billion adults around the world lack access to basic financial services such as a bank account.
If Libra becomes a success, Facebook hopes it can supercharge its core advertising business. Advertising comprises about 99% of Facebook’s total revenue. Facebook’s subsidiary Calibra would provide Libra-related financial services. Through Calibra, Facebook hopes to diversify its business outside the advertising market. Calibra is currently looking to recruit marketing experts.