LONDON, June 21, 2019 (BSS/AFP) – If Facebook’s new cryptocurrency should
resonate anywhere it should be India, where the social media giant has more
than 300 million followers.
Many Indians are shut out of banking and face punitive fees for simple
transactions, like transferring money to their loved ones.
But in India as elsewhere, the US company’s ambitions to remake global
finance through its “Libra” currency will have to overcome regulatory
mistrust, plus the existence of popular homegrown rivals in the market for
digital payments.
“If regulations were not a hurdle in India, Libra would instantaneously
have a massive reach because of Facebook,” Anirudh Rastogi, the founder of a
technology-focused law firm in New Delhi, told AFP.
When it launches next year, Libra will be backed by a basket of real-world
currencies and a consortium of companies. To mint and store new coins, access
to its underlying “blockchain” technology will be more restrictive than for
the free-for-all of bitcoin.
Companies rooted in traditional finance such as Visa and MasterCard have
joined from the start, betting that Facebook’s clout gives the project enough
potential to overcome any downside to their existing business models.
“I will definitely use Libra as the idea seems good and they have a big
partnership list thereby offering credibility,” 23-year-old consultant Prasad
Khake said in Mumbai.
“The platform will work depending on how accessible and easy it is for
billions of Indian users,” he said.
Therein lies the problem. Cryptocurrencies are currently banned in India,
and the country’s central bank, which calls them a “contagion”, is taking its
time to craft a regulatory framework.
– Bulging wallets –
Facebook itself is banned outright in China, and the company admitted it
would be unable to operate Libra anywhere that is subject to US sanctions,
such as Iran.
There is suspicion too on its home turf, with US lawmakers highlighting
Facebook’s poor record in safeguarding user data. The Senate banking
committee has scheduled a hearing for July 16.
French Finance Minister Bruno Le Maire said digital money could never
replace sovereign currencies. Bank of England governor Mark Carney said Libra
would have to withstand the toughest scrutiny and not become a tool for money
laundering or terrorist financing.
There is clearly potential if Facebook makes good on its pledge to bring
low-cost or free banking to the unbanked and open up areas such as money
transfers, where the company — citing UN data — says migrants lose $25
billion every year in remittance fees.
For their part, money transfer businesses say they welcome the challenge.
“It may help with educating regulators, could evolve the payments ecosystem
faster and eventually lower the cost of moving money, making the
conversations on the issues we’re tackling more mainstream,” TransferWise
chief technology officer Harsh Sinha told AFP in London.
To access Libra on their smartphones, users will go through a virtual
wallet called Calibra. There are plenty of such e-wallets already, however.
Paytm and FreeCharge are popular in India. Facebook’s own WhatsApp has been
trialling a digital payments service in India, but has faced resistance from
the central bank.
– Here to stay –
The Philippines could be another fertile market, with Filipinos working
overseas sending tens of billions of dollars every year through money
transfer outlets. But often in the Middle East and the rest of Asia they are
kept on a tight rein by employers and lack access to the internet.
“They (overseas workers) barely embraced online banking so cryptocurrency
may even be a stretch unless the demographics goes to an upswing with tech-
savvy millennials,” said Victoriano Gimenez, an electrical engineer who
worked for six years in Saudi Arabia.
Another popular platform in India is M-Pesa, which started life in east
Africa and has helped millions in Kenya, Zimbabwe and elsewhere move beyond
cash and traditional banking.
Winning over the foreign public to the idea of Western-backed crypto
payments is one thing. Winning over their governments is another, and could
be the biggest challenge to global adoption of Libra.
“Regulators around the world have really now to wake up and actually say
‘well, what do we do about regulating this?’ and not just banning this,
because it won’t be going away,” Iqbal Gandham, managing director of eToro in
Britain and chairman of the industry group CryptoUK, told AFP.
But even if regulators don’t see a threat to their sovereign currencies,
they will still be exercised by exchange rate risk, liquidity in times of
financial crisis, and the impact on corporate competition, according to ING
economists Teunis Brosens and Carlo Cocuzzo.
“While a lot remains unclear at this stage, Facebook has clearly started a
new chapter on digital currencies,” they wrote in a research note. “Over to
policymakers for a response.”