The future of libra in question

The payment services company PayPal announced on Friday, October 4, 2019, that it would not participate in Facebook’s digital money project. A decision that could be followed by others, and that weakens him a little more freed him up.

Is this the first name of a list that will soon include others? The payment services company PayPal announced on Friday, October 4, 2019, that it would not take part, finally, in the digital money project carried by Facebook, the libra, which is to be launched in mid-2020.

The first source of concern

Facebook has a poorreputation for privacy and personal data protection. The second concern is that this parallel monetary system does not encourage money laundering, tax evasion, or even the financing of terrorism due to a lack of control. Finally, the size of Facebook, the world’s largest social network with 2.7 billion users (including Instagram, WhatsApp, Messenger, etc.), also implies that the new currency could complicate the task of central banks in controlling the international financial system.

Monetary sovereignty of States

On September 12, 2019, the French Minister of Economy and Finance, Bruno Le Maire, announced that France refused to authorize the introduction of libra “on European soil,” considering that “the monetary sovereignty of States is at stake.” He continued: “Any failure in the functioning of this currency, in the management of its reserves, could create considerable financial disorders.” Bruno Le Maire also fears that the libra will replace the national currency in states where the currency is weak or has been severely devalued.

In addition to this mistrust from the public authorities, there are doubts about the libra’s chances of success. The latter will remain dependent on the basket of currencies to which it will be backed. Libra managers will, therefore, not be able to create currency if the need arises, nor will they be able to act as guarantors “as a last resort” in the event of instability.

Rumors about Visa and Mastercard

This decision by PayPal deprives Facebook of an investment of at least $10 million (9.1 million) but raises questions about the possibility of other announced partners disengaging. For several days, rumors have been circulating in the press about this subject concerning Visa and Mastercard.

For its part, PayPal has not provided any official justification for its withdrawal. But a source close to PayPal explained to the Financial Times that “it would appear that there has been little preparatory work done with financial regulators” and that payment services such as Paypal did not want “regulators’ attention to overflow on their business.”