TheLibraeffect:discussingitsimpactonSAcentralandcommercialbanks

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Episode summary

The best way to think about Libra is to imagine if Facebook’s 2.7bn users (across FB, Messager, Instagram and Whatsapp) formed their own digital country; you can think of Libra then as their native digital currency. The Libra project has been driven and initiated by Facebook. The Libra association which is separate from Facebook will manage the network and monetary policy of the actual currency.

The Internet unlocked global e-commerce, but the actual payment has lacked innovation. There are still several intermediaries in the payment process. Libra would be a peer-to-peer currency that would bypass these intermediaries. You still need an onramp and offramp from your local currency into Libra. This will be provided by banks and other market makers, potential crypto exchanges like Luno and Valr in South Africa.

The difference between Libra and Calibra is that Libra is the actual digital currency, while Calibra is the Facebook wallet which will be an app for your smartphone. There are 28 Founding Members of the Libra Association, these include Visa, Mastercard and more. The Founding Members will likely start accepting Libra. Libra will run on its own blockchain network. The Founding members will each run nodes on the network; this requires an upfront investment of US$10-m. Libra's vision is to allow transactions with close to zero fees.

Libra will solve price stability by backing each Libra with stable reserve assets. The reserves will be stable liquid currencies like USD, EUR, YEN and GBP. The Libra Association will manage the monetary policy of the reserves. Libra is a great threat to central banks. In South Africa, Libra adoption will mean ZAR weakness and capital flight. Libra will likely target developing economics first. While Libra will likely not be legal tender in South Africa, merchants can still choose to accept it.

Commercial banks may provide banking services eg. wallets and loans on Libra. The negative side is that commercial banks may lose some existing transactional data insights. For entrepreneurs, Libra can be seen as a new financial services platform like Apple’s app store. With smart contracts Libra will democratise financial services. Libra is planned to launch in mid-2020. Their test-net is already live, but complying with local regulation will be the challenge.