Bitcoin and Co: Taming Libra instead of banning it 2

Bitcoin and Co: Taming Libra instead of banning it


The cryptocurrency Libra could also have considerable effects on welfare: up to $ 35 billion in savings on transfer costs, predicts the World Bank.

imago images / ZUMA Press

The cryptocurrency Libra could also have considerable effects on welfare: up to $ 35 billion in savings on transfer costs, predicts the World Bank.

"Zuckbuck", "Shitcoin", "Kryptomafia": Libra's cryptocurrency project, launched by Facebook, came under intense violence when its leader, David Marcus, held hearings in mid-July before finance committees of the US Congress. The parliamentarians spoke of many very serious risks and potential weaknesses of a private global cryptocurrency. According to information provided by the Bloomberg news agency, the European Commission should also have opened an investigation.

Cyrus of the Rubia

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    Commercial Bank of Hamburg

    Cyrus de la Rubia is chief economist at the Hamburg Commercial Bank in Hamburg, where he analyzes global trends in foreign exchange and interest rate markets. In addition, he is a lecturer at the Frankfurt School of Finance and Management, specializing in advice on economic policy and author of the book "Our money in crisis".

However, even if, surprisingly, many parliamentarians on both sides of the Atlantic critically evaluate the Libra project and would prefer it to be stopped, the potential social benefits of this new payment system should not simply be ignored, but use the criticisms and deal with them constructively.

Account without bank account

What is it? The Facebook stock market chart announced in June 2019, as well as nearly 100 companies in the first half of 2020, will launch a cryptocurrency called Libra. Unlike Paypal, Apple Pay and other renowned payment providers should work Libra without connecting to a bank account. This is made possible by the use of blockchain technology, which is also used by the basic principle of Bitcoin cryptocurrency. To this end, the Libra organization will propose a digital portfolio, called Wallet, under the name of Calibra. Users can then transfer funds in Balance from their wallet to another Calibra user's wallet through an app, whether they are Facebook members or not.

In addition, Calibra is supposed to be the key to regulatory compliance. Thus, according to Facebook's plans, each Calibra customer must undergo a "Know Your Customer" (KYC) process. In this way, money laundering, terrorist financing, etc. should be avoided. At best, with transfers, minimal fees should be incurred. In addition, the value of Libra should be relatively stable, as it is covered by a basket of currencies that, according to David Marcus, will include 50% US dollars and 50% other stable currencies. Kurscapriolen as with Bitcoin would be virtually impossible.

The Libra makes it possible to obtain considerable effects

The benefits of this project are obvious: on the one hand, cost savings, which can be considerable, especially with cross-border transfers. This concerns above all the money transfers with which many foreigners send money home, for example in Germany or the United States. With average bank transfer fees of 7%, according to the World Bank, potential annual savings could rise to around $ 35 billion for affected families. The effect of these savings on well-being should not be underestimated, especially since it is usually low income.

Another keyword is financial inclusion. Libra could reach the majority of the 1.7 billion people in the world who do not have information about their bank accounts. Because about 60% of these people own a smartphone, which, combined with access to the Internet, is enough to participate in the Libra network. And finally, there is the possibility of keeping one's money, without fearing that it will be devalued by an irresponsible monetary policy. After all, 40% of the world's population is repeatedly affected by the decline of its national currencies. Current examples include Venezuela (hyperinflation), Turkey and Argentina (double-digit inflation rate). More generally, a cryptocurrency such as Libra should boost international trade (Internet) in particular, creating new business opportunities for many businesses.

Strict regulation required

However, an objective view of the envisaged monetary innovation also reveals dangers that should not be hidden. On the one hand, there is a hundred percent coverage of the cryptography field with dollars and other stable currencies, which the Facebook cosmos society has defined in its white paper. These foreign exchange reserves are held in the form of high quality short-term securities or bank deposits. With a positive interest rate, which is not a trivial condition given the current negative interest rates, the Balance generates funds that cover on the one hand the operating costs but also the companies that manage the organization.

Here is the danger: who guarantees that the coverage in the future is 100%? The temptation on the part of the members should be great. Gradually reducing coverage by parts of the reserves is invested in illiquid and riskier assets, in order to increase profits. It is not for nothing that the US Congressional Hearing has raised the blame that what would appear as a decentralized Blockchain with a limited number of members could actually be considered a cartel. Obviously, strict regulation is needed here, and coordination of the major economies of the United States, the EU and Japan would make a lot of sense.