‘Big Tech’ are coming for our banks, but should we be worried? Digital currencies are back in the spotlight as US regulators at Facebook’s lofty plans. take swing Last week David Marcus, head of Facebooks ‘Cailibra’ project and former president of Paypal testified before the US government for their proposed digital currency ‘Libra’, which according to David Marcus, is intended to address : an important problem “Imagine a daughter who wants to send money home to her mum in another country. Of the $200 she sends, $14 on average will be lost because of fees. It can also take several days or even weeks for the mother to receive the money. A delay that can prove disastrous in an emergency. Not to mention lines may be long, and collection points may be in high crime areas.” Captured in a small village close to Tangier, Morocco: People line up to use the only ATM in town. So What is Libra? One big advantage is that payments in Libra will be available on both existing payment rails (i.e. card terminals), and also by scanning barcodes via your smart phone. The currency will be maintained by a distributed ledger, empowering users to take custody of their own funds, initially in the online. This means your smartphone can become your bank account, killing the need for a retail bank entirely. Libra will be a stable currency that can be used for payments and other financial activities around the world. Calibra wallet Today in the world remain unbanked, with women making up a higher percentage of those than men. Indeed many countries around the world have poor access to financial services that involve long lines at ATMs & Banks, limited access to credit, high borrowing rates and more. 1.7 billion adults Libra aims to lower the barriers of entry to financial services by requiring only a smartphone, and reducing the costs of commerce with distributed ledger technology. monthly active Facebook users, its easy to see how Libra could be integrated into the everyday lives of so many people. With access to 2.38 Billion Governments Don’t Like Libra Before Facebook’s announcement, banks and governments weren’t threatened by digital currencies. Many of the projects that exist today simply aren’t as equipped to take on the world. But Facebook is a centralised company, and must cooperate with local authorities in each jurisdiction (unlike Bitcoin). This is one reason why Facebook was careful to keep separate the Libra foundation from its US counterpart. Facebook also has a terrible reputation, with authorities around the world unhappy with the size and power they already have. Not to mention their track record of that have rigged democratic processes and proliferated the spread of ‘fake news’. scandals Despite its challenges, Libra, if successful could be a popular option for those who suffer from poor local banking experiences and an inflationary local currency. Certain governments will increasingly see Libra as a threat to both Central Bank policy and retail banking industries and so it’s likely that central banks with the most to lose from Libra will be the first ones to oppose the use of it in their countries. Anti Money Laundering One of the major themes of the recent US government hearings has been Money Laundering and the perceived risks associated with digital currencies. US Treasury Secretary Steven Mnuchin that Libra could be used by terrorists and money launderers, a narrative often used to argue against the merits of Bitcoin and other digital assets. While these concerns are valid, he added that regulators are open to digital currencies so long as these risks are managed, and that Libra has a long way to go to prove this. expressed his concerns But as far as digital currencies go, how concerned should we really be about money laundering and terrorist financing? Should they be treated any differently to cash? One interesting statistic shared by Steven Mnuchin in his recent discussed the progress that has been made in combating anti-money laundering & terrorism with the Banking Secrecy Act: cryptocurrency press conference "Last year alone, it (Fincen) collected over 20 million BSA reports ct Reports), and has collected over 300 million in the last 11 years." (Banking Secrecy A In , , a corporate finance expert and long standing advocate for digital currencies cited on the cost of the Banking Secrecy Act, stating the most recent publicly available data for these figures is from 2006, in which it was reported that 16 million BSA reports had been collected, resulting in a total of Her interpretation being that BSA reports had increased from 16 million (2006) to 20 million per year (2018, as per Mnuchin’s recent statement) which isn’t a significant difference. The conclusion of her 2006 analysis was that 296 convictions is a small outcome for the extra costs and efforts that went into collecting 16 million BSA reports. a recent interview Caitlin Long her 2018 piece 296 anti-money laundering convictions. In other words, decades of costly fees for consumers, sensitive data breaches, and non-existent innovation in financial services may be getting traded in for a sobering number of yearly convictions. While anti-money laundering and terrorist financing are important, it shouldn’t be so taboo to ask fair questions about how we can balance this with improvements in the user experience of money, especially if these risks are overblown. Libra will Not be Open and ‘Permissionless’ Networks like Bitcoin and Ethereum are open and permissionless, which means anyone with a computer and internet connection can contribute to the network by or . running a ‘node’ adding proposals to it’s open source development This is a core design feature that promotes egalitarian access whilst also giving the network resistance to censorship and control. The recent hearings have made it clear that Libra will not benefit from these properties and will in turn prioritise the needs of the corporations and regulators involved rather than its users. Some points we can confirm from the hearings are: The Libra foundation will control who can join the network as a ‘Node’. The Libra network will have an anti-money laundering program. The Libra network will report directly to the Internal Revenue Service (IRS). Still, Libra has impressive shared in its white paper and technical papers. Its network will have its own programming language called ‘Move’ that will allow invited members to build applications and extend the use cases of Libra. technical details It’s likely that Facebook will encourage third parties to build new financial services on top of Libra, including tools for lending and saving, all without the need for a bank. Conclusion Countries that are weighed down by the limitations of cash, bad central bank policy, and poor retail banking experiences have the most to gain from Libra. Ironically, these countries are also the most likely to ban Libra as it directly reduces the influence and control they have over their own banking systems. Anti-money laundering practices are a major bottle neck for global commerce. If Facebook gets this right it could significantly reduce the costs of financial services which would in turn create more equal opportunities for the un-banked and under-banked. It could also promote competition among retail banking in first world economies. Libra will not be open and permissionless. If Libra becomes mainstream it will be interesting to see if these limitations cause users to migrate to more open networks. _________________________________________________________________ I collect my information from a variety of sources linked throughout the article. My interpretation of these sources are my own opinions. The information provided is for general use only. All images are either my own or have been sourced through Adobe Stock . If you have anything to add or feel that any sources could be improved, please comment below. If you enjoyed this article please clap on the left! 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