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21 Jul 2019 13:08
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  •   Home > News > International

    Facebook's new Libra cryptocurrency is set to help the 'unbanked' of the world, whether they want it or not

    Helping people with no bank account may be a laudable goal for Facebook's cryptocurrency, but critics fear it could destabilise emerging economies.


    Helping people with no bank account may be a laudable goal for Facebook's cryptocurrency, but critics fear it could destabilise emerging economies.

    When Facebook announced the Libra network last week, it led with a message of financial inclusion.

    They wanted to "address the anomaly...that 1.7 billion people are completely unbanked, despite a billion of them having mobile phones," wrote David Marcus, the head of Facebook's Libra company, Calibra.

    A situation he believes could be solved, in part, by Libra — a global digital currency that users could send using an online wallet ostensibly as easily as they send a text message.

    But where do the "unbanked" live? And what do these countries think of his offer?

    Where are the 'unbanked'?

    Facebook draws the figure of 1.7 billion "unbanked" — defined as people without bank accounts — from the World Bank's 2017 Global Findex database.

    The report found nearly half of this group live in Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan.

    But no company or institution from these countries is currently represented among the 28 founding members of the Libra Association — the group that will manage the cryptocurrency — apart from the online payment company MercadoPago, which operates in Latin America.

    Russell Toth, a senior lecturer at the University of Sydney who specialises in development economics, said the lack of participation from companies in "unbanked" regions was "somewhat glaring given the stated goals of the project".

    However, he pointed out that several aid organisations such as Mercy Corp and the micro-loan provider Kiva are part of the Libra Association. Companies like Visa and Uber are also members.

    The association aims to have 100 partners by 2020. A Facebook spokesperson said it "looks forward to welcoming additional Founding Members from diverse backgrounds".

    In many of the potential target countries there has been a recent boom in homegrown financial technology.

    In Kenya, Agnes Gathaiya, the chief executive of Integrated Payments Services Limited (IPSL) runs an instant payment service known as PesaLink.

    While no Kenyan companies are part of the Libra Association, Ms Gathaiya pointed out that Facebook boss Mark Zuckerberg has visited the country to study how it supports mobile payments.

    "Facebook has quite a large adoption in Kenya, so it will be interesting to see if the confidence ... will translate into, or can translate into, actually using their payment solutions," she said.

    "In Kenya, consumer trust and confidence are the only things that drive adoption of financial services."

    Cash in, cash out

    Libra could help support financial inclusion in Africa, according to Dr Iwa Salami, a senior lecturer in financial law at the University of East London, who has researched mobile payments and digital currencies across the continent.

    But many practical questions remained — in particular, how users will transfer the cryptocurrency into cash.

    In Kenya, for example, a mobile money service known as M-Pesa allows users without a bank account to deposit money with a local agent, who transfers the balance to their mobile device. They can get cash out the same way.

    In Myanmar, where he has worked, Dr Toth said a rapid telecommunication rollout has made Facebook synonymous with the internet — a situation human rights groups claim has exacerbated the country's sectarian violence.

    But it also makes the country potentially fertile ground for the Libra network.

    "Building an accessible digital wallet into Facebook in a setting like that — at a high level it has a lot of potential," Dr Toth said.

    Yet, he too had questions: "Where will you convert Libra coin into Myanmar kyat? And [will] the places where people buy stuff start taking digital payments?"

    A Facebook spokesperson said its own digital wallet Calibra will work with local exchanges and other providers that accept cash.

    "People will be able to bring cash to these exchanges where they will receive a code they can manually input into their Calibra app to load their wallets," he said.

    Stefano Parisse is the group director of consumer products at Vodafone (a member of the Libra Association), which helped launch M-Pesa in Kenya in 2007.

    He said the M-Pesa experience showed the cost of transferring money internationally remains high.

    "That's a key challenge that companies building products on the Libra blockchain might be able to address," he said.

    Losing economic control

    Then there are larger questions as to how Libra might impact national economies in "unbanked" regions.

    In the Financial Times, Facebook co-founder Chris Hughes suggested the network will "disrupt and weaken" countries by helping people to transfer their unstable local currencies into one managed by corporations.

    This was also a concern for Dr Salami.

    She suggested Kenyan consumers might welcome Libra.

    "Most people would like to have the opportunity to transact in a currency that's global," she said.

    But regulators may see things differently. If Libra was to become widespread, particularly in developing countries, it could shift monetary control to the Libra Association.

    That group has decided the Libra cryptocurrency is to be backed by a basket of bank deposits and short-term government bonds in stable currencies such as the dollar, pound and euro.

    "What you are likely then to have is a shift of control from those developing country economies, to ... central banks such as the US Federal Reserve Bank and European central bank," Dr Salami said.

    This could make it more difficult for central banks in emerging economies to set monetary policy. To stimulate their own local economies in times of economic distress, for example.

    To address this, Dr Salami suggested that Libra's governance framework include an international public-private partnership with central banks and regulatory authorities from around the world, among other groups.

    "This would certainly give Libra much more legitimacy," she said.

    "At the moment, there are doubts as to giving a group of largely blue-chip private companies, whose interest is really profit-making rather than global financial and monetary stability, total governance control over a currency that could be potentially global."

    A Facebook spokesperson said it looked forward to responding to lawmakers' questions as this process moved forward.

    Ultimately, Dr Toth questioned whether some of the "unbanked" would be easily reachable by a digital currency — Libra or otherwise.

    And how many of the "unbanked" are also "un-Facebooked"?

    "I would like to see someone look at the intersection of people who don't have electricity, who don't have reliable data access, people without smartphones and the 'unbanked'," he said.

    "A lot of those 'unbanked' people have no way of accessing a smartphone-based technology."

    © 2019 ABC Australian Broadcasting Corporation. All rights reserved


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