Libra is dead as US dollar comes firstBusiness | Ivan Tong 17 Jul 2019
Libra, the proposed cryptocurrency being developed by Facebook, ain't gonna fly! The social media giant has promised not to offer the digital currency - which could rattle the US dollar and other major sovereign currencies - until regulators are fully satisfied and all necessary approvals are in place.
After revealing its ambitions about Libra in the middle of last month, Facebook has run into strong opposition over the so-called "stable coin."
US President Donald Trump's recent remark that he is not a fan of Bitcoin or any other cryptocurrencies could be the last straw that breaks the camel's back for Libra.
There are several reasons as to why there is so much opposition and concern about the proposed new digital coin. It could be used for laundering money and could even be manipulated by terrorists to threaten a nation's security. It could pose a threat to user privacy, as it linked to Facebook. And, it could impact currencies around the world.
However, all these concerns or excuses are secondary and minor ones.
The real reason why Libra does not stand a chance is because it will directly compete with US monetary policy and the US dollar, though not many people will admit it.
This is a criminal offense that warrants nothing less than death, in the eyes of the United States.
On the face of it, Libra sounds good. Facebook has more than 2 billion users worldwide, and the intention is to create a cryptocurrency that can be used within and beyond Facebook, reaching out to serve millions of "unbanked" people with easier online transactions. It would be a payment tool, not for investment.
Libra's price would be linked to a basket of coins to help it avoid significant price fluctuations that Bitcoin and other cryptocurrencies have been prone to.
Going by past history, Bitcoin has not been an effective trading tool and the cryptocurrency has turned into a speculative asset, mainly because its price has fluctuated so sharply.
Bitcoin's price once fell from US$20,000 to US$6,000 in just four months. Give this a thought: except for speculators, does anyone at all use Bitcoin for meaningful transactions?
Facebook certainly thought about this problem and it hopes to open the cryptocurrency door to its huge user base by allowing them to extensively use Libra. Under the concept, Libra will linked to the basket of low-risk assets, as well as the US dollar, Euro, British pound and Japanese yen, to ensure price stability.
But even though Facebook is very strong as a fintech giant, it can't compete against the power of a country, especially when its opponent is none other than the United States, a world superpower.
The reality is that the more chances there are of Libra succeeding, the more a country will act to suppress it when it emerges.
In a way it's like the Sino-US trade war. Many analysts believe the yuan's emergence as a global force, was one of the reasons for the war, because it touched a raw nerve in the United States, which saw the Chinese currency challenging the global hegemony of the US dollar.
Libra , it appears, is being killed off for pretty much the same reason.
Conspiracy theorists meanwhile point to the US Federal Trade Commission's approval of a record US$5 billion fine on Facebook for leaking the private data of 87 million users to political consultancy Cambridge Analytica. The fine may have been deliberately timed to prove more bullets to the US government to crack down Libra, they say.
David Marcus, the Facebook executive spearheading the blockchain project, was scheduled to meet the Senate Banking Committee as part of Congressional hearings yesterday and today to explain and answer questions over Libra.
But since Facebook has declared it will not proceed with Libra's launch, the hearings are pointless.
Of course, this does not mean that Libra will be forever doomed, but it could be quite a while before this new cryptocurrency sees the light of day.