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How dangerous is Facebook’s digital currency Libra?

Facebook wants to bring the digital currency Libra at the start and thus build up a competition with dollars, euros and Co. But what do economists say about that? The most pressing questions about the crypto currency.

A few days ago Facebook introduced a concept for the new global digital currency Libra. In the meantime, experts have taken a closer look at the concept so that important questions about Libra can now be answered – including potential dangers for the financial system and the data of millions of customers.

When will Libra start?

The official launch is scheduled for the first half of 2020. But even Facebook managers admit that by then many regulatory and legal issues need to be resolved. The old Facebook motto “Move fast and break things” (be quick and break rules and established) does not lead to the goal here.

How can Libra be used?

As with other cryptocurrencies, you need a digital purse (“wallet”). Facebook will release its own wallet “Calibra”. It will work as a standalone app, but will also be integrated with WhatsApp and Facebook Messenger. Users can buy Libra with traditional currencies such as dollars, euros or yen at authorized file sharing – and also switch back.

What advantage do users have if they use Libra?

In the first phase, Libra is aimed primarily at people who want to transfer money across national borders and so far have paid horrendous fees in the classical financial system. Another application scenario is the fast transfer of money among friends, for example, when splitting a restaurant bill.

Is Libra a “Facebook currency” at all?

Facebook has driven the concept forward and funded the first phase of development work. Responsible for Libra will be its own consortium, the Libra Association. The association owns 28 tech and financial companies, including Uber, Paypal, Visa, Masterdard, Vodafone and Spotify. But there are also non-profit companies like Kiva. The US organization organizes microcredit lending in developing countries.

Does Facebook get insight into financial transactions with Libra?

Facebook actually gets when money is transferred via Calibra, WhatsApp or the Messenger. However, the network promises to keep the financial information of its users separate and not to use for targeted advertising.

And that should one believe Facebook?

The statement is actually publicly questioned. The Federal Commissioner for Data Protection, Ulrich Kelber, warned against Libra. “A corporation that has such huge amounts of data should not yet have details of our payment history,” Kelber told the “Kölner Stadt-Anzeiger”.

Facebook has promised not to summarize the transaction data with other data. But, “If we depend on the goodwill of Facebook, I would advise against trusting it,” said Kelber. Already at the merger of Facebook and Whatsapp, the company has not kept to its commitments.

What do classic banks mean?

So far, the big banks are with public statements back. But there are also financial experts who already speak plain language and massively criticize the move to a digital world currency: “Facebook, of course, has another purpose,” says Robert Halver of the Baader Bank.

“If you get data from billions of customers, like they’re on the internet, spending money, borrowing, and so on, then the data weck we’ve got is just a little nonsense.”

What do Europe’s currency watchers think about so-called cryptocurrencies?

Even to the Bitcoin hype central bankers had a clear opinion: Such a crypto tokens are not a right currency, it lacks the control of a central bank or a state, said ECB President Mario Draghi. However, the underlying blockchain technology is “quite promising” because it allows, for example, to settle invoices automatically on receipt. Several central banks are experimenting with Blockchain – including the Deutsche Bundesbank.

What does the influential Financial Stability Board (FSB) mean?

The Financial Stability Board (FSB) believes that wider use of new types of bulk payment crypto-assets would require close scrutiny by the authorities to ensure that they are subject to high regulatory standards.

“The FSB and the standardization organizations will monitor the risks very closely and in a coordinated manner, and consider additional multilateral measures as needed.” With the FSB statement have probably done the hopes of Facebook, Libra is only gently regulated.

What makes Libra different from the crypto-currency Bitcoin?

Bitcoin and Libra differ in several ways centrally. On the one hand, Libra is linked to a basket of established currencies such as the US dollar, the euro and the yen and hedged by short-term government bonds. This avoids massive price fluctuations like Bitcoin (“stable coin”).

Libra also does not use Blockchain in the strict sense of the word, but rather another system of Distributed Ledger Technology. Thus, Libra consumes only a fraction of the energy that must be expended when “mining” the bitcoins.

If Libra will be comparatively stable, why is the Bundesbank still criticizing the concept?

Bundesbank President Jens Weidmann believes that even less volatile cryptocurrencies pose a risk to consumers: “In particular, the question arises as to how the value of stable coins can be guaranteed.”

If stable coins are used on a large scale, they could undermine the deposit formation and business model of traditional banks, warns Weidmann. This in turn could disrupt their payment transaction business and processes in the financial markets.

Can Libra be abused by criminals?

At least, Bundesbank board member Joachim Wuermeling sees this danger: “For example, such platforms should not become a new marketplace for money laundering or terrorist financing,” warned Wuermeling in a “FAS” interview.

In the opinion of Bafin-President Felix Hufeld, politics, overseers and central banks in various areas – from monetary policy to money laundering – would be required if Libra prevailed. Basically, the question arises: “How can one ensure state control in the digital world?”

Does the importance of Libra go beyond the financial world?

Yes, that is possible. So, in the white paper, there are two short sentences indicating that the ambitions of the project go further than bringing billions of people into the global financial system. “Another goal of the (Libra) Association is to develop and promote an open identity standard and we believe that a decentralized and sustainable digital identity is a prerequisite for financial integration and competition.”

With 2.4 billion users worldwide, Facebook could succeed where others have failed to introduce a globally accepted digital ID.

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