Introduction
Currency transactions conducted online are a common form of monetary operations made today due to the extensive functionality of payment systems and methods. In addition, the principles of ensuring the security of such operations allow avoiding significant risks and guarantee interested parties the reliability of moving assets in the virtual space. However, in conditions of expanding opportunities of online trading, traditional currencies sometimes give way to cryptographic ones, which are characteristic exclusively of the Internet environment and, at the same time, perform the role of unified means of payment. As an object of analysis, this work aims to evaluate Facebook’s Libra, a virtual currency introduced by the world’s most popular social network. In addition to an opportunity to purchase goods and services, this payment tool has convenient functions and sufficient advantages to become a single online transactional instrument. The introduction of Libra as a new currency is justified by the usefulness of creating a simple financial asset that can be positively accepted due to the worldwide expansion of virtual money.
Facebook’s Reasons for Developing Libra
The announcement of the release of the new Libra cryptocurrency was presented by Facebook management on June 18, 2019 (“Libra Association,” n.d.). According to Vasudevan (2020), the token of the same name will be the main payment element. It can be exchanged through standard operations by using funds that are denominated in the selected currency. Also, Libra is a convenient tool for safe paying for goods and services online. The cryptocurrency is not involved in credit and loan systems and is designed solely to support duty-free money transfers among interested parties (Vasudevan, 2020). Facebook management decided to develop this payment system due to its easy accessibility, which translates into an opportunity to pay for purchases in any place and condition. Also, the convenience of generating assets is one of the incentives to introduce such a payment mechanism. Two key sources of money dominate – investors who are willing to promote the Libra and users of virtual tokens. The simplicity of the mechanism is a valuable aspect that explains the intention of Facebook management to include this system as a single platform for paying for goods and services via the social network.
Libra’s Difference from Other Cryptocurrencies
One of the differences between Libra and other cryptocurrencies is the presence of a guarantor, which is a certain amount of real financial assets. Vasudevan (2020) notes that each token of the system is protected by securities and bank deposits. In other words, the cryptocurrency has an appropriate background that protects its owners from the loss of assets and maintains the validity of all transactions. The management of reserves is organized to prevent Libra volatility. At the same time, the advantages and strengths of other cryptocurrencies, for instance, Bitcoin, are preserved. Transaction speed, reliable data encryption, hassle-free cross-border transfers, and other convenient functions make Libra a useful tool for paying for goods and services.
Another significant difference between the considered system and other cryptocurrencies is its stable cost. According to Vasudevan (2020), compared with other means of virtual payments, Libra guarantees that the network of financial flows will not fall and will not be interrupted, even if some of its validators are compromised. As a result, the reliability and stability of the cryptocurrency are its essential advantages and distinguish it from other virtual payment systems.
Consumer’s Reasons for Choosing Libra
As an ordinary consumer, I would prefer Libra to other cryptocurrencies for several reasons. Firstly, one of the important advantages of such a payment system is the lack of banks as intermediaries and financial coordinators. Since in standard transaction systems, there are threats associated with depreciation and other unforeseen exchange impacts, their intermediation carries certain risks. Libra, in turn, eliminates the participation of third parties in coordinating financial transactions and allows conducting all payments quickly and safely.
Secondly, the convenience of this cryptocurrency lies in the absence of the need for lengthy registration procedures. Authentication via Facebook makes it possible to avoid authorization on external platforms and helps to quickly switch among the possibilities of virtual payment. In addition, users of the social network can control their assets freely and have stable access to all necessary information, which eliminates the risks of unforeseen errors made in the process of managing funds.
Finally, Libra is a cryptocurrency that is suitable for all global financial transactions. It may be utilized by both individuals and legal entities as a single tool for paying. For ordinary consumers, such a system helps eliminate the challenges caused by lengthy bank transfers and requests processing. In addition, developers pay particular attention to intuitive control over finances, which can be carried out due to any gadgets. Therefore, the choice in favor of Libra is an objective decision to evaluate the advantages of this convenient cryptocurrency.
Libra’s Governing Structure
Libra has a clearly established mechanism for managing and coordinating the activities of the entire system. In the description of the Libra Association, which is an organization with a complex structure, the Libra Council is referred to as the key governing board (“Libra Association,” n.d.). It is responsible for all decisions and activities of the project. A board of directors includes a list of individuals who control the Libra Association’s various aspects of service delivery, for instance, operating officers, communications specialists, and other posts. This complex system is a convenient mechanism for monitoring the activities of the project at all its levels and contributes to establishing productive and smooth operations.
Today, Facebook seeks partnerships via the Libra Association and interacts with various market players. According to Vasudevan (2020), such a strategy helps the corporation to implement individual development plans successfully because communication with large market participants opens up great operational potential. Since Libra has not yet become a global cryptocurrency, the company’s management needs to ensure its stable support and promotion in different circles. Therefore, partnerships with large Chinese banks and other reputable members of the global financial community open up growth prospects for the Libra Association and stimulate the interest of potential investors.
Reasons for Companies to Join the Libra Association
One of the reasons why different companies can pay attention to the activities of the Libra Association and join it is an opportunity to create a simple and stable system of direct payments. As Azouzi and Echchabi (2019) note, Facebook’s project is developed so that to “unite payments on a global scale and lower transaction costs,” thereby giving stakeholders an opportunity to avoid complicated transactional procedures (p. 84). For international organizations, such a system is not only convenient but also safe since large financial flows are easier to control when the number of operations is minimized.
Another incentive for companies to join the Libra Association is open data collection mechanisms. Vasudevan (2020) argues that Libra’s predictive algorithms help expand the opportunities of the platform and provide partners with a convenient system for evaluating an investment. Active participation in the project allows for a more convenient data collection process, and the cycle closes. Thus, the management of the Libra Association, and potential investors, and partner companies can benefit from productive interaction and establish effective cooperation strategies.
Joining the Libra Association
CEO’s Perspective
When acting as the CEO of a business organization, I would pay attention to the Libra Association and take an opportunity to interact with it. There are a number of reasons why this decision is objective and logical. For instance, when dealing with cryptocurrencies, using Libra is a good solution due to its stable cost. In conditions of economic instability and financial fluctuations in different industries, this characteristic is of high importance and guarantees the safety of assets.
Another potential incentive to collaborate with the Libra Association is a contribution to business development, in particular, an opportunity to interact with other major participants in the global financial community. Contracts with banks, which the Facebook management concludes today, are the key to broad operational possibilities in the future. Joining the Libra Association means participating in a system of international economic processes accompanied by creating partnerships and joint projects. As a result, this interaction has long-term prospects and may become the basis for successful market growth. Therefore, the interaction with the considered association is characterized by valuable perspectives and can be considered by the CEO of a business organization as an opportunity to increase the authority of his or her company.
Regulators’ Approach to Libra
The Libra Association, as a new player in the global financial market, has significant advantages over many competitors due to the flexibility of cash flows and monetary practices that allow tracking any illegitimate capital gains. At the same time, regulators from different countries and, in particular, the USA, as Vasudevan (2020) notes, react ambiguously to the possibility of the emergence of a new cryptocurrency. One of the fears is a complete transition to Libra as a single monetary unit of payment for transactions within Facebook. Regulators cannot prevent the social network from promoting a new financial mechanism and engaging potential partners and investors. Nevertheless, specific coordinating boards may incur obligations on the company to include support for other currencies in order to prevent the potential expansion of Libra and the depreciation of the dollar. Vasudevan (2020) mentions congressional hearings that took place in the summer of 2019, and Libra Association’s activities were discussed in the context of the threat of a new economy emergence. Thus, regulators can coordinate the activities of the association in question, while not prohibiting the use of a new cryptocurrency.
Measures Taken by Regulators
Despite regulators’ concerns, the Libra Association is a project that does not aim to monopolize its new currency as a single transactional tool. In accordance with the missions that the management sets, transparent membership conditions are promoted, and cost reduction for many people is proposed (“Libra Association,” n.d.). However, in order to safeguard the global economy, regulators may offer appropriate changes in the work of the Libra Association and oversee its activities based on the existing legislation.
In particular, one of the measures is the segregation of commercial activities from payments. According to Vasudevan (2020), regulators explain this practice as the need to “protect household savings from the speculative excesses of fund-managers” (p. 32). Another measure is to prevent the provision of freedom to financial institutions to conduct business independently. Vasudevan (2020) states that such an outcome is fraught with the loss of control over many enterprises’ economic indicators. As a result, regulators should pay attention to the legitimacy of companies cooperating with the Libra Association and coordinate the activities of the organization in question on the basis of the existing financial legislation.
Main Risks and Concerns for Market Participants
Despite the advantages of Libra as a new cryptocurrency, there are some risks for various stakeholders, including financial market participants and ordinary customers. For instance, for investors, there are no severe threats, although, in general, for these interested parties, profits will not be significant since all rights to Libra belong to Facebook. Digital risks are threats to customers, and they are associated with account hacks. According to Vasudevan (2020), users’ personal data are not always protected reliably enough to ensure complete security. As practice shows, Facebook has already encountered cases of information leakage, and such a result is potentially dangerous if the situation concerns real financial assets. For central banks, concerns suggest a threat of lower customer numbers and decreasing spheres of influence because Libra has the potential to replace a significant share of many domestic currencies. Finally, for Facebook itself, risks lie in the impossibility of entering the markets of individual countries and the potential costs of legal proceedings. However, all the described concerns do not exceed the advantages that the new cryptocurrency possesses.
Benefits for Facebook
The implementation of the new project is valuable and potentially profitable for Facebook. The world-famous social network can increase its capital significantly if many users and partners utilize the services of Libra. In addition, growth opportunities open up new markets and business directions. Partnerships with foreign corporations and major market participants are the key to sustainable activities and, in addition, increase the company’s credibility among stakeholders.
The provision of free services to the population is one of Facebook’s priorities. Based on the development plan, the ability to help users to reduce their costs meets the business development strategy and is highly significant in the context of achieving customer loyalty (“Libra Association,” n.d.). Thus, promoting Libra globally has several potential benefits for Facebook as a company that interacts with millions of stakeholders and seeks to enhance its business potential.
Conclusion
The convenient and potentially profitable cryptocurrency Libra is a good Facebook solution due to the ability to simplify financial and economic relations among various stakeholders. This resource is unique and differs from other types of virtual money. Engaging with major market players is a legitimate Facebook managers’ strategy, and involved partners can also benefit from such collaboration. Regulators’ approach to the Libra Association should not contradict the existing legislation, but certain measures may be taken to protect domestic currencies. There are some risks for different stakeholders, but Libra’s advantages outweigh its potential weaknesses. The development of the new currency is in line with the innovative development strategy promoted by Facebook and is a profitable solution for the corporation.
References
Azouzi, D., & Echchabi, A. (2019). Libra announcement: Does it have an impact on Bitcoin’s price? Journal of Innovation in Business and Economics, 3(02), 83-90. Web.
Libra Association: Moving to a formal governance structure. (n.d.). Web.
Vasudevan, R. (2020). Libra and Facebook’s money illusion. Challenge, 63(1), 21-39. Web.