Weighty matters
Mark Zuckerberg knew what he was doing when he signed off on the name of Facebook’s new cryptocurrency, Libra. The star sign is associated with harmony, fairness and balance, but it’s also a unit of weight, originally used by the Roman Empire.
It’s a name which cleverly implies what crypto enthusiasts have been promising since the currency’s inception a decade ago: a simple direct payment system that bypasses banks and can be accessed by anyone with a smartphone, but is still trustworthy.
Work the system
So how will Libra work? Like many digital currencies it’ll run on a blockchain system, with no central authority managing payments, but the Libra Association will be in charge – a non-profit organisation created by Facebook and made up of companies put together by Facebook and including PayPal, eBay, Spotify, Uber and Lyft.
You’ll be able to use Libra by downloading Calibra, a digital wallet, and you’ll be able to send it to any smartphone user. Just how you’ll get Libra in the first place, Facebook isn’t yet saying, but chances are you’ll simply be able to buy it using your real-world currency – Visa and MasterCard are both in the Libra Association.
The main difference between Libra and cryptocurrencies such as Bitcoin is that Libra will be a ‘stablecoin’. It will have its value tied to real-world government-issue currencies, making it value more stable than cryptocurrencies which only exist in the digital realm.
Golden opportunity
And although Libra is as cutting-edge as you can get, it could actually rely on the traditional safe haven: gold. Steve Forbes, editor-in-chief of Forbes Media, has published an open letter to Zuckerberg, urging him to tie Libra to the precious metal rather than currencies.
“For a variety of reasons, gold holds its intrinsic value better than anything else,” Forbes writes. “It’s like a measuring rod. It no more restricts the money supply than the 12 inches in a foot restricts the size of a building you might wish to construct. All it means is that the Libra will have what no other currency has today: a fixed value.”
Power to the people?
Facebook says that it’s creating Libra primarily to help people who don’t have access to banks. Head of Calibra David Marcus says: “We know the journey is just beginning, but together we can achieve Libra’s mission to create a simple global currency and financial infrastructure that will empower billions of people.”
Of course, Libra’s announcement has also sparked controversy and concern around issues from data grabs to privacy to power. Facebook co-founder Chris Hughes wrote in the Financial Times of his worries that the Libra Association would take control of monetary policies from central banks to private companies.
“This currency would insert a powerful new corporate layer of monetary control between central banks and individuals,” he writes. “Inevitably, these companies will put their private interests — profits and influence — ahead of public ones.”
Big impact
If it takes off, Libra’s impact could be immense. Many experts say it could be that big banking killer app which the world has been waiting for. Arthur Hayes, CEO of Bitcoin company Bit MEX, told Bloomberg that he thinks Libra will ‘destroy commercial and central banks.’
And Libra could also change the way we think about cryptocurrencies and their investment potential, as Goldex founder and CEO Sylvia Carrasco points out. “The volatility of cryptocurrencies is one of the main reasons why digital currencies have been pigeonholed as an attractive speculative asset – and nothing more,” she says.
“But the launch of Facebook’s ‘stablecoin’ could change that forever, and finally deliver crypto to the masses. We look forward to seeing whether the world’s most influential social media player will pull this off – and what it means not just for the future of payments, but also the future of long-term investment and savings.”
Bright future
So should we all be rethinking our attitude to investment in risky cryptocurrencies? Not just yet, cautions Carrasco. Libra might point to a bright future but at the moment, crypto is still a highly volatile area.
“At present, given the price fluctuation of Bitcoin and other altcoins, nobody would dream of transferring their parents’ life savings into crypto just yet – but who knows what the future will bring,” she says. “Right now, gold is still the world’s oldest, most reliable and most trusted monetary asset.”
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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.