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Libra’s future in the balance

Libra is being promoted as a simple global currency and financial infrastructure that can empower billions of people. It is being built on blockchain and will be backed by a reserve of assets designed to give it intrinsic value.

RSM National Leader, Blockchain and Cryptocurrency Jay Schulman said: “It’s disruptive to financial statements. Is Libra a currency or a security? How do we record receivables in Libra? There is no specific guidance under IFRS today. Cryptocurrencies are often viewed as either intangibles or inventory, which approach is ultimately applied will change the look of the financial statements if Libra were to make up a significant percent of a retailer’s sales.” 

Reaction to the launch of Libra has been mixed. House Financial Services Committee Chair, Rep.Maxine Waters commented, “Given the company's troubled past, I am requesting that Facebook agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action.”

Bank of England Governor Mark Carney was reported by The Financial Times as being ‘open-minded’ about the proposed cryptocurrency but later faced criticism in the UK press when it was revealed that Facebook’s Mark Zuckerberg had met him earlier in the year to discuss Libra.

Speaking on Europe 1, French Minister of the Economy and Finance Bruno Le Maire said he intended to ask for guarantees from Facebook, including ‘the guarantee that this instrument of transaction cannot be diverted to finance terrorism or any other illegal activity’. He said he has asked G7 central bankers to report to the G7 finance ministers at their next meeting in Paris on 17-18 July 2019.

Schulman added: “Libra poses risks as well as opportunities for businesses. First and foremost, Libra is disruptive. It makes micro-payments possible on a large scale. With Libra, businesses can sell a 10% off coupon for 10 cents and make a profit. Transferring money between countries without the inefficiencies of the current financial system is also possible. Libra could make it possible for an Indian entrepreneur to sell a $1 product in the United States without dealing with conversion fees and fluctuations in currency.

“The strength of Libra’s founding members will be the key to its success. Facebook’s 2.8bn users are an important part of this but it isn’t the only factor. The technology and expertise of other members such as Mastercard, Vodafone and Stripe are just as important. Regulatory agencies around the world have already noted this and are concerned as a result.”

The Libra Association will be responsible for facilitating the development of the Libra blockchain and managing the Libra reserve. Among the founding members of the association, by industry, are:

  • Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
  • Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
  • Telecommunications: Iliad, Vodafone Group
  • Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
  • Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
  • Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking

More organizations are expected to join and the association also plans to raise funds through a private placement.

Separately, Facebook, the driving force behind Libra, has announced plans to establish a new subsidiary, Calibra, whose first product will be a digital wallet for Libra that will be available in Messenger, WhatsApp and as a standalone app, expected to launch in 2020.

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