Facebook already rules daily communication for more than 2 billion people around the world. Now it wants its own currency, too.
The social network unveiled an ambitious plan Tuesday to create a new digital currency similar to bitcoin for global use, one that could on its platforms. But the effort -- which Facebook is launching with partners including PayPal, Uber, Spotify, Visa and Mastercard -- could also complicate matters for the beleaguered social network. Facebook is currently under federal investigation over its privacy practices and along with other technology giants also faces a new antitrust probe in Congress.
Creating its own globe-spanning currency -- one that could conceivably threaten banks, national currencies and the privacy of users -- isn't likely to dampen regulators' interest in Facebook.
Called Libra, the digital currency is scheduled to launch sometime in the next six to 12 months. Facebook is taking the lead on building Libra and its underlying technology, and its more than two dozen partners will help fund, build and govern the system. Facebook hopes to raise as much as $1 billion from existing and future partners to support the effort.
Libra is a form of digital cash, or crypocurrency, that uses encryption technology to make it secure. Cryptocurrencies exist not as physical bills or coins but rather as lines of digitally signed computer code. Records are typically kept on ledgers known as blockchain.
Company officials emphasized Libra is a way of sending money across borders without incurring significant fees, such as those charged by Western Union and other international money-transfer services. Libra could also open online commerce to huge numbers of people around the world who currently don't have bank accounts or credit cards.
"For many people around the world, even basic financial services are still out of reach: almost half of the adults in the world don't have an active bank account and those numbers are worse in developing countries and even worse for women," said Facebook in a press release.
"If you fast forward a number of years, consumers all over the world will have the ability to access the world economy," Facebook executive David Marcus said in an interview with The Associated Press.
"Fostering more sales"
Facebook also could use its own currency to get more people to make purchases from ads on its social media sites, said Gartner analyst Avivah Litan, who based her comments on press reports about Libra that preceded Facebook's formal announcement. "This is about fostering more sales within an ad to get more business from advertisers to make ads more interesting on Facebook," she said.
Backing by familiar corporations might also make Libra the first bitcoin-like currency with mass appeal. Such "cryptocurrencies" have generally failed to catch on despite a devout following among curious investors and innovators. Bitcoin itself remains shrouded in secrecy and fraud concerns, not to mention wild value fluctuations, making it unappealing for the average shopper.
Libra will be different, Facebook said, in part because its value will be pegged to a basket of established currencies such as the U.S. dollar, the euro, the yen and others. Each purchase of Libra will be backed by a reserve fund of equal value held in real-world currencies to stabilize Libra's value.
To be sure, recent history reminds us that many big Facebook announcements never really take off. Two years ago, Facebook CEO Mark Zuckerberg promised that "augmented reality," in which phones and other devices project digital images into real-world surroundings, would be a major focus for the company. Such AR applications remain all but invisible today. Same goes for the online shopping chatbots that Zuckerberg unveiled a year earlier, saying they would revolutionize e-commerce in its Messenger app.
Facebook won't run Libra directly. Instead, the company and its partners are forming a nonprofit called the Libra Association, headquartered in Geneva, that will oversee the new currency and its use. The association will be regulated by Swiss financial authorities, Facebook said.
"No single company should operate this," Marcus said. "It should be a public good."
A new digital wallet
Facebook has also created a new subsidiary, Calibra, that's developing a digital wallet to allow people to buy, send and use Libra. Calibra pledges that it won't share transaction data from details of Libra user's financials with Facebook unless compelled to do so in criminal cases. Still, if people are using Facebook products to buy things and send money, it's possible Facebook will be able to track some data about shopping and money transferring habits.
Calibra won't require users to have a Facebook account to make a free wallet. And it will allow people to send Libra back and forth on two of Facebook's core messaging apps -- WhatsApp and Messenger. Instagram messages won't be included, at least at first.
"From the beginning, Calibra will let you send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost," said Facebook's press release. "And, in time, we hope to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass."
Libra partners will create incentives to get people and merchants to use the coin. That could range from Uber discounts to a Libra bonus paid when users set up a Calibra wallet, although the companies haven't laid out specifics.
Many privacy questions remain unanswered, though. Cryptocurrencies such as Libra store all transactions on a widely distributed, encrypted "ledger" known as the blockchain. That could make the Libra blockchain a permanent record of all purchases or cash transfers every individual makes, even if they're stored under pseudonyms rather than real names. Facebook said if people use Calibra or similar wallets, their individual transactions won't be visible on the Libra blockchain.
Earlier this year, Zuckerberg announced a new privacy-focused vision for the company after months of backlash for its treatment of personal customer information. Zuckerberg's vision -- which has mostly not been detailed publicly -- will rely heavily on privacy-shielded messaging apps in an attempt to make the services more about private, one-to-one connections.
With Libra's scheduled public launch in the first half of next year, whether consumers will embrace it is an open question. Discounts potentially offered by Uber and other partners might be enough to get people to at least try the system. But many people find it easy enough to pay for goods and services online with credit and debit cards.
Many analysts believe Zuckerberg wants to create a U.S. version of the Chinese service WeChat, which combines social networking, messaging and payments in a single app. Libra would take Facebook a step closer to that end.
First published on June 18, 2019 / 9:05 AM
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