Will Libra really help the unbanked? No - and here’s why

This article was originally published on Forbes 24. June 2019

Just this past week, Facebook announced what we have heard rumours about for a very long time. Libra, the latest cryptocurrency is a “digital asset designed to work as a medium of exchange that uses strong cryptocurrency to secure financial transactions, control the creation of additional units and verify the transfer of assets.” Facebook unveiled its newest concept in a lengthy whitepaper, claiming Libra will “transform the global economy” and empower the global unbanked community - roughly 1.7billion global citizens without a bank account. But will it really?

First, let’s see how Libra is meant to work. Libra is a form of digital money that is backed by a reserve of assets. When it launches in 2020, anyone will be able to use Libra as a payment for online and offline products and services. At the start, Libra will be used to transfer money between individuals in developing countries who lack access to traditional banks. Ultimately, the aim of Libra is to be a truly mainstream cryptocurrency: a decentralized global form of payment that is as stable as the dollar, can be used to buy almost anything, and can support an entire range of financial products — from banking to loans to credit. The Libra Association, overseeing its development, includes, among others, Mastercard, PayPal and Uber. I am not sure about you, but these are hardly companies that I identify with as helping the unbanked. If they wanted to, they could have made a difference a long time ago. Paypal seems more tied up in blocking legitimate users in developed countries than being ready to accept the unbanked. But that’s for a different blogpost.?

The problem is, in order to use Libra, you need to have either Messenger, WhatsApp or the dedicated Libra app. So basically you need Facebook. You also need a device that can run Facebook which is a smartphone. And in order to obtain any Libra coins, you will need to buy them with real money. To clarify then, in order to use Libra, you need Facebook, a smartphone and a digital means of payment to buy the damn Libra Coins. So if you have these three things, then why exactly do you need Libra? And how will it help the unbanked?

What I believe is that far from “decentralizing the financial system”, Libra will in fact further centralize our data, and this is what Facebook is interested in frankly. Libra is not about helping people who don’t have access to bank accounts; it’s about getting them into the Facebook network and exploiting its users’ privacy. It will be interesting to see how anonymous Libra really will be, and the moment it’s not, we can safely assume that information will be used to personalize advertisements according to your spending habits. If you are inside Facebook and pay a Facebook friend, don’t tell me that payment will not be used to impact the next advertisement you are served.?

What Facebook is doing with Libra is introducing a second layer of monetary arbitration, a completely unnecessary piece of mechanics, that is as of today, not regulated. Facebook does say that it will work with regulators, but soon after the whitepaper dropped, Facebook received significant backlash from government bodies and central banks saying that “Libra should not be seen as a replacement for traditional currencies.” Among the concerns of Libra are questions of privacy, money laundering and the financing of terrorism. And are we surprised? This is a network that is initiated by Zuckerberg’s empire and his followers of proven personal data breachers, advertising pushers, election jugglers, opinion echo chambers who serve only the highest bidder and their own interest.?

Because Libra is backed by deep pocketed investors in a second crypto scheme that requires a minimum 10M USD investment to play, it’s vaguely proposed to be less volatile than previous coins. The reality is that most people may not be sure how this coin is any different from previous coins. If anything, this will drive even more speculation and make it more mainstream and much more volatile. It’s the perfect story to make sure as many join while it’s still subject to massive speculation. The fact that it started from a bag of fiat money will be instantly forgotten and Libra will kill Bitcoin in terms of speculative investments, and the price will not be rooted in reality, and far from its initial fiat placements. That’s my prediction.?

If we really want to see a case study of how technology is helping the unbanked, we just need to look at the tens of millions of people in Africa, India, Eastern Europe and Afghanistan who have been sending real money to each other on mobile phones since 2007 using M-Pesa. This is huge because less than 10% of Kenyans have access to financial services, but nine out of ten adults have access to a mobile phone in Kenya, and recent figures suggest 15.1 million people are actively using M-Pesa today.

We can also look at AliPay in China. AliPay is arguably the best success story of digital payments. It has already successfully financially included millions of people in China and across the world, again using real money and without requiring a Facebook account. More and more of these technologies will become the preferred method of payment; we just need to look at Vipps in Norway and Zelle in the US.

In conclusion, is Libra a good idea? Yes, a brilliant idea, but only if your goal is to unlock more data from more people and monetize it to build your own global business. If you want to make money on cryptocurrency speculations then Libra is fantastic news for you, and as we’ve seen since the news dropped, Bitcoin has just soared past $11, 000 for the first time in 15 months, verifying that the market is not rooted in reality. To make a connection between Bitcoin and Libra proves that the rationale behind Libra is not absorbed by the market. If you are one of the people out there that Facebook (cl)aims to help, because you do not have access to a bank account and are locked out of the banking system, my advice is to use a mobile payments app. As we’ve seen with cases above, these are proven to be successful. They operate in a government backed and internationally accepted currency, are regulated, and in fact represents the fastest growing financial services product on the face of the planet right now. No wonder why Facebook wants in, but I advise you to stay away, you won't regret it.