Facebook (FB) - Get Report is reportedly mulling a strategy change for its Libra cryptocurrency project that could help it win the backing of more regulators -- and perhaps also more consumers in developed countries -- but might also make it less appealing in emerging markets.
On Tuesday, Bloomberg reported that Facebook is “weighing a recast of Libra as mostly a payments network that could operate with multiple coins” that in turn could be issued by central banks and tied to existing currencies such as the dollar or the euro. Such launches could happen in tandem with the originally-planned launch of a global Libra token that’s tied to a basket of low-volatility currencies.
The Information initially reported on Tuesday that Facebook no longer plans to support a global Libra token, but amended its report after Facebook said it “remains fully committed” to doing so. The website also reported that the launch of Facebook’s Calibra digital wallet service, which the company plans to offer both through a standalone app and via WhatsApp and Facebook Messenger, has been pushed back from this summer to October.
The reports come nine months after Libra was first unveiled to much fanfare. They also come five months after Facebook Libra chief David Marcus said that the Libra Association -- the non-profit group responsible for managing Libra -- is open to having Libra consist of “a series of stablecoins” pegged to existing currencies. It also follows considerable pushback from regulators around the world regarding the potential of a global Libra token to undermine central banks by giving consumers an alternate currency that they can quickly convert local-currency funds into.
If the Libra Association doesn’t get the green light to offer a global Libra token in a country where high inflation and/or currency volatility are recurring issues, and instead can only offer a local-currency stablecoin, it would do away with Libra’s potential value in such countries as a “safe haven” currency that consumers could both move funds into at times of high volatility and more generally lean on to conduct digital transactions.
In addition, though a lot probably depends on the specifics, such an outcome could make Libra less appealing for cross-border transactions, including remittance payments from overseas workers. Facebook and other Libra backers have been arguing that a global Libra token could enable free or at least low-cost remittance payments to emerging markets such as India, Mexico and the Philippines.
However, having Libra consist of stablecoins likely wouldn’t have much of an impact on some of its other potential uses. These include:
- Providing financial services for “unbanked” consumers.
- Supporting digital content microtransactions that can’t be economically supported by payment cards, due to their fixed per-transaction fees.
- Enabling online transactions with much lower fees than what’s charged by credit cards (in practice, credit card rewards programs, together with the fact that consumers won’t receive interest payments on deposited Libra funds, could limit the appeal of this particular use case).
Also, for many consumers in the U.S. and other countries with low currency volatility, a stablecoin version of Libra might actually be more appealing than a version tied to a basket of currencies, as it would fully eliminate the risk of their Libra funds depreciating in value relative to their local currency.