Is Facebook about to move into financial services with Libra?

The launch of Facebook’s own cryptocurrency, Libra and wallet function Calibra, has caused an array of very different views to be expressed in the mass media. Many believe that this will help to reduce international money transfer costs while others suggest the company is simply exploiting its access to potential users. Interestingly, Mark Carney, the governor of the Bank of England, has given a very positive overview of the situation suggesting that competition is good. He also floated the idea of allowing companies such as Facebook, with its forthcoming Libra cryptocurrency, access to deposit facilities with the Bank of England.

Moving with the times

Whether governments and regulators like it or not, cryptocurrency’s are here to stay and no amount of regulation can put the genie back in the bottle. As a consequence, it is now time for central banks, governments and regulators around the world to work together with cryptocurrency companies for the good of consumers. The main problem for regulators is the fact that large and influential cryptocurrencies could in due course replace a significant amount of recognised currency deposits. How’s this an issue?

Systemic risk

Once cryptocurrency become so influential that they have an impact on everyday life, this then brings them into the category of potential systemic risk. In effect, central banks and regulators are suggesting that these currencies must be highly regulated in a similar fashion to traditional currency transactions. For example, if a leading cryptocurrency was to collapse in value (as we saw with Bitcoin) this could have a massive effect on funding liquidity and a knock-on effect similar to that seen after the US mortgage crisis. Nobody is yet suggesting that cryptocurrencies are currently a systemic risk but if companies such as Facebook are able to maximise and leverage their user base this could become a possibility.

Competition is good

The Libra cryptocurrency is effectively an association taking in what will be heavy weight players in the financial industry. While Facebook has recently refuted allegations that some big players in the industry have refused to join the association, it will not necessarily be a smooth ride to success. The new currency is likely to be launched in 2020 by which time Facebook is extremely confident of more widespread acceptance. Aside from the fact this offers Facebook the perfect opportunity to push Libra as a means of purchasing and saving on Facebook, it looks as though Facebook is also looking at wider financial services.

Financial services

One of Facebook’s more senior members of the Libra association has already been talking about Facebook introducing an array of financial services if Libra is a success. Initially these might include some form of credit services although this type of operation would require licensing from regulators around the world. If we look at this from a business point of view it makes perfect sense for Facebook to move into the digital age and maximise returns from existing members.

Taking a step back and looking at this from a distance, this would obviously attract significant regulatory attention amid suggestions that Facebook was potentially abusing its power and position. All in all, it looks as though we have some fun and games ahead!

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