Facebook considers redesigning Libra for regulatory approval

Source: Bloomberg , original author: Joe Light, Benjamin Bain, Olga Kharif

Source: Planet Daily, Translator: Yu Shunsui

Facebook and its partners are considering redesigning the cryptocurrency project Libra so that the network accepts multiple currencies in an effort to attract reluctant global regulators and rebuild momentum for the program.

When Facebook announced the Libra plan, it stated its intention to create a single global digital currency. Anyone (especially 1.7 billion people without a bank account) can send money anywhere in the world at very little cost, as simple as texting.

Three people familiar with the matter said that eight months later, after the idea was opposed, Facebook and the Libra Association behind the digital currency were considering a reform. Two people familiar with the matter said they are considering reinventing Libra into a payment network that can use multiple tokens.

The aforementioned people said that these tokens may include tokens issued by central banks in various countries and supported by the US dollar, euro or other currencies. People familiar with the matter said that the Libra Association will soon reintroduce Libra. People familiar with the matter asked not to be identified because the redesign is still ongoing and plans may change.

A person familiar with the reform said that the dream of a global single currency has not been shattered. The person said the new plan could expand rather than weaken the original vision.

  • (Odaily Planet Daily Note: There are differences in reports from different media here. According to Reuters , The Information earlier reported that Facebook will adjust its digital currency plan under the scrutiny of regulators. Facebook will not provide it through its own services Libra; but the media subsequently corrected the article and said that Facebook remains committed to providing Libra. A Facebook spokesperson confirmed to Reuters that the company is working on a digital version of the government-backed currency and still plans to provide the proposed Libra Tokens. According to The Information, three people familiar with the matter said that under pressure from regulators, in addition to the proposed Libra token, Facebook has decided to provide digital versions of government-backed currencies for its Calibra users, including the US dollar and the euro. The Block The Information was quoted as saying that although the launch time of Facebook's digital wallet Calibra was postponed from June to October, Facebook still hopes to launch Calibra and these digital currencies at the same time. The company hopes to provide this wallet on WhatsApp and Messenger, but based on Local currency supported by it, initially possible Limited to certain countries.)

However, if the transformed Libra is more like a payment network than a single global cryptocurrency, the average U.S. consumer may not find Libra and PayPal Holdings Inc. or many of them designed for seamless global transfer How big a difference there is between existing payment systems operated by FinTech start-ups.

Facebook and the Libra Association declined to comment.

Libra's encounter since its debut in June 2019 is the story of a arrogant, cautious legislator, protective regulator, and a partner worried about the risks involved. Facebook and 27 other companies have announced that the project is a way to connect globally, while also bypassing the financial system and reducing remittance costs, especially for people without bank accounts. The project will initially include Visa, Mastercard, and other large companies that will become Facebook's partners in managing the system.

As originally envisaged, the Libra token will consist of a relatively stable basket of assets, such as the US dollar and government bonds, the euro, the Singapore dollar, the pound sterling and the yen. The Libra reserve consisting of these currencies and debt instruments will support the token and its value will be adjusted in accordance with the market value of the underlying asset.

But the plan ran aground almost immediately. U.S. lawmakers say they do not believe Facebook can manage a financial network after Facebook has made dramatic mistakes in other areas, especially after repeatedly failing to protect user data.

Some central bank officials have said that this new digital currency could hurt the sovereignty of their currencies, and the finance ministers worry that it could lead to money laundering. Some European regulators have vowed that the project will never be approved.

The Geneva-based Libra Association sought to formally determine membership in October last year, and many of the most well-known members, including Visa and MasterCard, withdrew from the association. The project currently has 20 of its original 28 members, but has recently added two more-cloud-based business company Shopify Inc. and cryptocurrency trading platform Tagomi Trading LLC.

People familiar with the matter said that despite some people turning a blind eye to the project, representatives of Facebook and the Libra Association continued to meet with officials of the US Treasury, the US Securities and Exchange Commission (SEC) and other US regulators in response to their criticisms.

A person familiar with the matter said that in particular, US Treasury officials continue to focus on how the project will ensure that its payment network is not used for money laundering.

Some people involved in the Libra project worry that the SEC may rule that a token backed by a basket of currencies is a security and a tradable financial asset, such as a stock or bond. Such a decision would subject Libra to a series of information disclosure requirements, and regulators would impose the same strict restrictions on the issuance of shares, thereby weakening the availability of the token.

Central bank officials also said that if Libra issues multi-currency-backed tokens, it will weaken its ability to manage its currency.

Since Facebook announced the Libra project, several central banks, including the Bank of England and the European Central Bank, have said they are exploring their own digital currencies. People familiar with the matter said the reforms are designed to ensure that the new payment network is compatible with these projects, not to compete.

Libra and Facebook officials have traveled the world over the past few months, giving speeches at conferences, suggesting that payment networks like Libra can reduce remittance costs.

At the World Economic Forum in Davos, Switzerland, in January this year, Facebook executives and Libra co-founder David Marcus emphasized that the Libra network will not rule out these central bank projects.

Marcus said, "I really want to distinguish the network from the assets that run on the network. I think these assets may be issued by many different entities, whether the central bank or the private sector." He hinted that a new form of Libra could be Will carry multiple digital currencies.

Jennifer Campbell, founder of Tagomi, one of the new members of the Libra Association, said: "We think the momentum is great." She said that Libra "absolutely is first and foremost a payment system. There must also be a token in it, which is part of the strategy. But it First is a payment network. "

Libra may still face obstacles. People familiar with the matter said Congressional staff and Libra-related officials said the project could be defined as systemically important. If that happens, Libra could be subject to another layer of regulation by the Federal Reserve, which would mean following its equity and stress testing rules.

The Libra Association originally planned to launch its cryptocurrency this year, and Campbell says the technology is already in beta. But resolving regulatory challenges may take longer, and Facebook has vowed that it will not continue to participate in the project without US approval.