When Facebook announced the creation of a digital currency this week, the worlds largest social network did all it could to keep the spotlight off itself.
The strategy failed miserably.
Under plans that would see the new financial instrument — known as Libra — created by next June, the tech giant said it had teamed up with, among others, Visa, Mastercard and music-streaming service Spotify, to establish an association in Geneva to develop a digital currency that may eventually threaten the worlds legacy banking industry.
But regulators, lawmakers and campaigners were quick to focus on how Facebook may use Libra to cement its place across the digital landscape, and called for ramped up regulatory oversight on digital currencies.
Facebook officials also have been called to testify to the U.S. Senate next month to explain their plans for the digital currency.
Facebook has reason to worry.
A day after the Libra project was announced, Frances finance minister and the countrys central banker asked Benoît Cœuré, a European Central Bank board member, to look into the need to regulate digital currencies. A report on that project will come by mid-July when France hosts a gathering of the G7 wealthy countries, and will focus on the risks of money laundering, financial instability and interference in monetary policy by these digital instruments.
Facebook officials also have been called to testify to the U.S. Senate next month to explain their plans for the digital currency.
“Anything that works in this world, will become instantly systemic and will have to be subject to the highest standards of regulations,” Bank of England Governor Mark Carney said earlier this week, adding that he would keep an “open mind” to the new currency, but that it would have to comply with tough regulation.
By hurtling head-long into financial services, Facebook — already facing regulatory investigations into possible privacy violations and its inability to stop disinformation from spreading on its social network —is about to face a whole new level of scrutiny.
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It was not supposed to be this way.
Ahead of the digital currency announcement Tuesday, Facebook executives had worked hard to paint a picture of a coalition of 27 companies and charities (that figure is expected to rise to 100 members before Libras 2020 launch) working together to help billions of people send money digitally worldwide.
Talk was on helping the so-called unbanked, or people without a traditional bank account, often in the developing world, access financial services. It would reduce the cost of moving money from country to country, making it as easy as a few swipes on a smartphone, according to Facebook.
“Libra holds the potential to provide billions of people around the world with access to a more inclusive, more open financial ecosystem,” said David Marcus, a company official in charge of the social networks new digital wallet.
Such warm words, though, belie the looming regulatory issues.
First up is Facebooks existing dominance in large parts of the digital world, and how the new digital currency may help it maintain an advantage over rivals. That has become a central concern to antitrust officials in both Brussels and Washington, particularly with digital platforms like those owned by Facebook spreading out to all four corners of the (digital) economy.
Under the Libra proposals, almost none of the information connected to the digital currency will be shared with Facebooks existing services | Justin Sullivan/Getty Images
Facebook wont technically control Libra. But it will own a digital wallet, known as Calibra, that will be integrated into the companys widely-used social networking and internet messaging services. So when people want to actually use the new financial instrument, most will turn to Facebook (at least initially) to buy and sell digital goods and services.
Will others be able to compete by offering their own rival wallets? Maybe. But without access to Facebooks global network of 2.2 billion users (its unclear if the company will allow competitors onto its networks), its hard to see anyone even trying — and could lead to competition investigations if the social network is seen to be favoring its own digital wallet over those of rivals.
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Then comes privacy.
After last years Cambridge Analytica scandal, in which Facebook user data was misused during the 2016 U.S. presidential campRead More – Source
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