Legacy systems for money transfers are not enough and a new protocol for money is needed, commented Calibra’s head David Marcus in a recent blog posting. Calibra will be the universal wallet once Facebook’s Libra digital coin is given the green light.
Marcus pointed to the problem of legacy bank systems as being too fragmented and expensive to use. In addition to that, crypto wallets have no cross-chain compatibility. Fintech apps also pose problems, as they rely on banking and may also generate an expensive string of transactions for moving funds between wallets.
“Just like SMTP allowed any email provider to interoperate with other email providers, Libra can be the “protocol” that will enable fast, cheap, and stable money movement across service providers, institutions, and people all around the world,” envisioned Marcus.
But it is precisely this creation of new protocols that are worrying to banking regulators. Libra has the potential to gain undue influence as a fintech solution and may be required to offer bank-like guarantees.
Libra will arrive in a world where all transactions of value above $1,000 will be subject to reporting, based on the Financial Action Task Force requirements. Even now, fintech solutions limit the funds that can be sent without identity verification.
Facebook’s digital coin will probably include a KYC process, as already several public, permissionless digital coins have included customer screening. Still, countries like India, Germany and France have made extremely skeptical statements about Libra, considering it a threat against national sovereignty.
Using a digital coin may also lead to so-called dollarization of weaker economies. Currently, digital assets show high demand in countries with struggling economies and unpredictable national currencies. Libra, based on a basket of stable fiat currencies of leading economies, may offer a more stable storage of value in comparison to national currencies. But this informal switch to a new asset is seen as problematic for the financial health of economies.
Libra, if launched, will be 50% backed by US dollars, 18% by the euro, 14% by the British pound, 11% by Singapore dollars, and 7% by Japanese yen.
