Facebook’s Libra: Bound to Fail – Aly Madhavji
Remittance services around the world can be wildly inefficient where banks Money Transfer Operators (MTO), and companies that provide the services, charge excessive fees. In the developing world, cash points are very important to be able to send and receive cash. According to the world bank, the average remittance fee is 6.84% but depending on the amount and destination this can increase to 10% or even 20% of the amount sent. The exhibit shows how the remittances costs have changes over the last decade.
To lower remittance fees, Blockchain technology is part of the solution; however, it depends on the strategy used to reach people. MTO’s such as Western Union sign shops and post offices to long-term exclusivity contracts. If Libra’s blockchain solution, requires an MTO as a touch point, the user pays the MTO related fees as a service charge in addition to fees charged by the Libra network and Calibra. The MTO may have savings from blockchain, however, those savings may not be passed on to the consumer.
Overall, the lowering of remittance costs for the people who need it most likely will not see the benefits of Libra.
In addition to all of the above, Facebook’s Libra has had significant challenges with many governments including the U.S. Government. The U.S. Federal Reserve Chairman, Jerome Powell said, “Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability.” Libra has not addressed how they intend to work within the current legislative framework and operate within the money supply. Powell went further stating the project, “cannot go forward” until Facebook’s answers satisfy the regulators.
It looks like Libra’s project has many headwinds and challenges ahead. If they overcome those challenges, they may become a widely utilized currency throughout the developed countries in their ecosystem. However, It will leave the unserved population unserved. Therefore, Libra will fail to meet the promises they made.
References:
This is a repost of the Article written by Aly Madhavji featured August 2019 in Block Journal, Issue 10 : https://blockjournal.io
Published at Sun, 15 Sep 2019 11:42:59 +0000
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