Facebook’s Libra cryptocurrency project is crumbling

Facebook’s Libra cryptocurrency plan began to collapse over the course of a few hours on the evening of Friday, October 11.

Like dominoes toppling, all of its major financial partners began pulling out. EBay and Stripe began the exodus, followed quickly by Mastercard, Mercado Pago, and then Visa.

The five firms’ exit comes exactly one week after digital payments firm PayPal became the first to quit. Along with PayPal, they included the largest and best-known firms in the governing Libra Association’s 28 original members. 

Worse, with Visa’s withdrawal, the Libra stablecoin has no U.S. payment processor onboard. Only PayU, which does not service the U.S., remains.

The non-profit Libra Association was created by Facebook to launch a stablecoin that would act as a global digital currency. With the company’s 2.7 billion users of Messenger, WhatsApp, and Instagram products as potential users, elected officials and financial leaders globally expressed serious concerns. There fear was that the private currency could quickly become powerful enough to affect global financial stability. 

Libra has also been weighed down by its association with Facebook. The company’s awful reputation for protecting privacy and involvement with the 2016 U.S. election interference scandal led to widespread condemnation around the world. 

Earlier this week, Facebook CEO Mark Zuckerberg agreed to testify before the largely hostile House Financial Services Committee on October 23. Both it and Senate Banking Committee have held hearings in which the company and the cryptocurrency plan were savaged. 

The promise of financial inclusion

Mastercard was succinct. “Mastercard has decided it will not become a member of the Libra Association at this time,” its emailed statement said. “We remain focused on our strategy and our own significant efforts to enable financial inclusion around the world. We believe there are potential benefits in such initiatives and will continue to monitor the Libra effort.”

That promise of financial inclusion of the poor was at the heart of the Libra project, or at least its public pitch. The cryptocurrency would be far faster and cheaper to send across borders than current money transfer methods.

Remittances sent home by international workers from developing countries can cost as much as 10%, according to the World Bank. The cost of sending $200 via traditional money transfer services averages 7%—or $14—and can run as high as $20 in parts of Africa and the Pacific islands.

Payments firm Stripe’s statement also referenced this. The company remains “supportive of projects that aim to make online commerce more accessible for people around the world,” it said. 

The company added that it would “remain open to working with the Libra Association at a later stage.”

In its statement, an eBay spokesperson said that while it “highly respect[s] the vision of the Libra Association… eBay has made the decision to not move forward as a founding member.”

Latin America-based payments firm Mercado Pago became the fourth firm to pull out on Friday. 

It was followed by Visa, which held out the possibility of rejoining.

“We will continue to evaluate and our ultimate decision will be determined by a number of factors, including the Association’s ability to fully satisfy all requisite regulatory expectations,” Visa’s statement said.

It then chimed in on servicing the poor. “Visa’s continued interest in Libra stems from our belief that well-regulated blockchain-based networks could extend the value of secure digital payments to a greater number of people and places, particularly in emerging and developing markets,” it said.

Fortitude required

Dante Disparte, the Libra Association’s head of policy and communications, expressed thanks for the firms’ support for the goals and mission of the Libra project.

He said the group was “focused on moving forward and continuing to build a strong association of some of the world’s leading enterprises, social impact organizations and other stakeholders.” 

The goal, he added, remained the same: “[T]o achieve a safe, transparent, and consumer-friendly implementation of a global payment system that breaks down financial barriers for billions of people.”

The founding members of the Libra Association will be announced at its first formal meeting, on October 14, he added.

After PayPal withdrew, Disparte told Modern Consensus by email that the project was a “generational opportunity… to improve financial inclusion. The journey will be long and challenging.”

He added: “It requires a certain boldness and fortitude to take on an endeavor as ambitious as Libra.”

An investment in the future

Members of the Libra Association agreed to pay $10 million to buy in. That got them an equal vote in the management of the cryptocurrency, as well as a share of the interest earned by the basket of currencies that will back the stablecoin.

Facebook has said it hopes to have 100 Libra Association members by the time the currency launched. Original planned for 2020, Zuckerberg himself has admitted it would not meet that deadline. 

That voting structure was also designed to insulate Facebook from accusations that it would control the digital currency. Facebook is represented in the association by its Calibra division, which is planning to make a wallet for the cryptocurrency.

Disparte remained positive after the firms withdrew.

“[T]he makeup of the Association members may grow and change over time,” he said. “The design principle of Libra’s governance and technology, along with the open nature of this project ensures the Libra payment network will remain resilient.”