Top 5 reasons I support Facebook on Libra
Facebook is going to launch its cryptocurrency Libra next year 2020 and many of us including governments are skeptical on this. Hearing the congress session last week, I was quite disappointed by the Facebook representative with his lame answers. Nonetheless, looking into this topic in detail, I found out quite many reasons to believe in Libra. In fact I would say its not just another cryptocurrency but its a revolution. The vision is promising and I am completely sold to this idea. In this article, I am going to share my top 5 reasons for the same and I hope they help in translating the idea of this vision.
The very first reason is my belief in global currency. If we dig our histories, we will find that the whole purpose of fiat currency (e.g. dollar, yen or rupee) was to create a uniform medium of exchange, for goods and services (with in a country/region). Fiat currency with in a country serves good purpose, but what about the trades happening across countries? Rate of trading among countries is increasing day by day due to globalization. Considering United states alone, it did more than 5 trillion dollars of trade in year 2018. And this is just the percentage of overall trade statistics.
In the absence of single currency the trade transactions are bruised from both the sides. They are expensive as well as time consuming. Apart from the high transaction fees, banks also earn on exchange rate margins (bank’s rate is always higher than the market rate). As the money change multiple hands(banks) in between, overall transaction time can range anywhere from 3 to 5 days.
Global currency is going to play a catalyst role in the world of globalization. Its going to benefit traders as well as individuals who want to send/receive money internationally.
Digital is the need of 21st century. Though e-commerce is responsible for initial push, but it has become a more accepted form in modern world due to its ease, to carry and exchange both. Apple Pay, Google Wallet, Smart Card, online banking, they all represent the digital form in some way or other.
Adoption of digital currencies are happening across the world. Countries like Denmark , Sweden are thinking to build a 100% cashless society. Other countries including Netherlands, South Korea, Germany are experimenting with blockchain to be an integral part of their core banking. Emerging countries including India is pushing hard on digital through UPI.
With so many people supporting the digital form, sooner or later paper money has to move out or at least exist with minimal presence.
With libra being a digital currency it will be easy to store and move in the global context, further boosting the exchanges.
Libra is a cryptocurrency which makes security its primary characteristic. Currencies like Bitcoin have already showcased a successful model of the cryptocurrency to the world. Blockchain model makes the currency counterfeit safe with its decentralized ledger.This model is already proven on the grounds and as I said earlier many governments/organizations are trying to adopt it for various purpose.
Counterfeit currency is quite evident in illegal transactions. So many nations are paralyzed due to its wide existence. Recently India tried to burn this through demonetization, which could not help much but in fact hampered its overall growth rate.
Libra association is another gatekeeper which can really help in safeguarding the interests of people through identity and background checks.
Its unique model to keep currency safe to transact and store makes it stronger applicant for the global currency.
Though the important characteristics of any currency is its stability and security, ease of use is an important aspect in the world of competition. Being digital makes the currency easy to store and transact. Facebook has gone additional mile in ensuring more granular operations are easily handled.
Facebook is developing a new language called move to ensure organizations and institutions can consume this currency with ease. This will enable entities like online stores, currency exchanges, apps, pos systems to adapt this new form of currency much faster. They can develop their systems/apis on top of the move platform with less complexity.
Easier the integration, more is the adaptability when it comes to softwares.
Last but not the least reason for me supporting Libra is its governance model called libra association. I do agree that we need some governance to manage the function of new currency. Its probably a lighter version of how fed manages dollar liquidity and ensures its stability at the same time.
Price instability in other cryptocurrencies like bitcoin poses a serious concern if we consider this as a trade medium. Its price fluctuated from $300 to $15000 between 2015–17. Its due to the absence of monetary policy and with libra association (which is backed by actual assets), this can be controlled .
Another area where the governance can be of help is security. None of the crypto currencies have any checks in place and thats the reason it can serve as a paradise for all the illegal bodies. This is the primary worry of governments today accepting independent cryptocurrencies. Libra association promises to ensure currency is not in the wrong hands through multiple checks. This might pose some challenge dealing with regulations across different countries but I am sure it can overcome.
Is Facebook authorized to serve like Fed in the global space? I have very less knowledge on the legal aspects here. But looking from another perspective its a new idea and governments/institutions will take time to analyze its impact in their current ecosystems. We might see governments comings together to form a similar body which can function in global space. But thats a far sightedness! I will still give full points to Facebook on taking this initiative and showing the world a new model of exchange.
Though lot of questions are yet to be answered, libra initiative by Facebook has clearly shown promise for a digital global currency. I know governments are picky to say Yes, but I guess, its just a matter of time. There might be some glitches in executing the governance around it but the money revolution with cryptocurrency has already started and its not going away for sure.