Libra is cryptocurrency or a virtual currency proposed by American social media giants Facebook. Libra, therefore, is a modern payment infrastructure or a crypto coin that is governed by Libra Association. Libra Association is formed by around 100 associates that are the shareholders that funded the development of the crypto coin (Barber & Levy, 2019).
Strengths of Libra
Unlike other physical currencies, Libra will be accessible to anyone with a smartphone and data connectivity. Just like the Facebook app, which is available to anyone, even those on the move through their handset gadgets, Libra will be available through personal devices making financial transactions secure and fast. Therefore the transactions of Libra will be accessible no matter the location of the sender or the receiver. Libra as a currency and as an exchange infrastructure is stable. The stability of Libra is because like all other currencies, Libra is backed up by a reserve whose aim is to make value stable. The currency is also accessible across the world.
Delegate your assignment to our experts and they will do the rest.
Weakness
Although not verified, one of the most significant shortcomings of Libra payment systems like other currency and exchange infrastructure is it is susceptible to Fraud. Research indicates that in 2018, the total amount of cryptocurrencies lost through Fraud amounted up to $1.7 billion. Libra developers say that it is no exception to this challenge. The Fraud challenged is carefully tailored with cybersecurity issues relating to Libra. Facebook history about data mining or the privacy of the users has raised key security issues about Libra. Cybersecurity breaches can result in the currency falling into the hands of hackers. Libra association is said to create the regulations for the currency, but many fear that the association may act in its own interest to raise significant revenues. U.S congress members raised their concerns about the lack of regulations for the currency.
Libra Vs. Other Digital Payment Infrastructure
There are vast differences between Libra and other cryptocurrencies such as Bitcoin. The basis of value for Libra is based on trust in the issuer while bitcoin is based on economic scarcity. The value of Libra is tied to leading stable financial assets and national currencies. Bitcoin supply is fixed while the supply of Libra is adjusted by a consortium of the corporation and maintains the value of libra stable. Bitcoin cryptocurrency is highly volatile, while Libra has low volatility. Libra is decentralized but governed by libra association the same as Bitcoin. However, bitcoin is not regulated by anybody. Libra is set to be backed by a reserve of assets while bitcoin is not supported by anything. The bitcoin blockchain is permissionless, meaning the miners have the mining discretion is at their disposal while the libra blockchain is permissioned, meaning miners must seek permission before mining onset.
Libra is an international cryptocurrency while other payment systems such as Venmo, and PayPal use standard currencies such as dollars or shillings in Africa. Some of these payment methods, such as Venmo are restricted to a specific location while Libra can be used in any location across the world. Libra cryptocurrency is decentralized but regularized by Libra Association, while the other forms of payments like ApplePay, AmazonPay, PayPal or Mpesa are centralized and highly regularized.
The Influence of Libra on Our Lives
It eliminates the transaction fees that are common with the use of credit cards and through that they disrupt how things are usually sold and bought. It also provides financial services to the people who do not have bank accounts. Some people do not prefer to use bank accounts to save money. Therefore, Facebook through Libra will provide these services alternatives to their online identity providers.
It offers people an alternative medium of exchange, which is acceptable. Libra has much potential beyond speculation and is not susceptible to unpredictable and huge swings; hence, it is straightforward for the merchants to accept Libra as payment. Facebook has a good relationship with over 7 million advertisers, millions of businesses, and the experience prowess of the user; hence it can handle some challenges that come with currencies changing the lives of merchants and purchasers.
Libra will also motivate the business people and also attract more users for them through the incentives that it will offer. The association plans to give incentives may be the Libra coins to the operators who can manage to have people sign up for or to use Libra. The businesses which will earn the incentives can keep them to invest more, or they can pass them other users in form Libra discounts or tokens after making purchases. This can create competition between the businesses' wallets to identify which one can pass on to the customers most rewards hence attracting many users.
Libra also does have the potential to get many from the parents who are working back to the families as well as helping people maintain credit despite their physical possessions being robbed, therefore, improving the living standards of the people. The immigrant workers and those especially who are unbanked abroad will avoid being preyed on by remitters who charge high fees and muggers.
National Banks Reaction to Libra
National and central banks around the world have indicated that Facebook should expect regulatory questions to be raised over Libra. Just after the launch of Libra by Facebook France minister of finance warned against Libra becoming a sovereign currency. While the German politician termed Libra as a 'shadow bank' ( Browne, 2019) . Libra continues to face different views from different banks across the world and also from the various financial experts.
The critical issues raised by most of the central banks across the world because are the safety and compliance of Libra with financial laws in different countries. In England, the CBK governor said that Libra would face the highest standards of regulations scrutiny before being accepted as a means of exchange ( Browne, 2019) . Many governments are concerned about a repeat of Cambridge Analytica type of problems as it has been experienced in the past. There also issues with how the Libra will follow the financial laws of each of the country.
The possible reaction from central banks across the world is that they are going to warn the population against using Libra for transactional purposes. There is a fear among the governments that Libra might cause significant shifts in the exchange infrastructure that might affect the value of other national currencies. Therefore the domestic banks are likely to gang against the use of Libra. There is also security concern about Libra which national banks think will expose the population to the danger of losing their capital or financial data.
References
Barber, G. & Levy, S. (2019). The Ambitious Plan Behind Facebook’s Cryptocurrency, Libra. Facebook designs a cryptocurrency that it won't fully control, but that will uniquely benefit Facebook. Retrieved from https://www.wired.com/story/ambitious-plan-behind-facebooks-cryptocurrency-libra/
Browne, R. (2019). Facebook's cryptocurrency faced with regulatory warnings from global central bankers. Retrieved from https://www.cnbc.com/2019/06/20/facebook-libra-cryptocurrency-faced-with-central-bank-warnings.html
