The Libra currency — a stable coin
A Libra is a unit of the Libra cryptocurrency that’s represented by a three wavy horizontal line Unicode character ≋ like the dollar is represented by $. The value of a Libra is meant to stay largely stable, so it’s a good medium of exchange, as merchants can be confident they won’t be paid a Libra today that’s then worth less tomorrow. The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies. Including the dollar, pound, euro, Swiss franc and yen. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.
The 28 soon-to-be founding members of the association and their industries
- Payments: Mastercard, PayPal, PayU (Naspers’ fintech arm), Stripe, Visa
- Technology and marketplaces: Booking Holdings, eBay, Facebook/Calibra, Farfetch, Lyft, Mercado Pago, Spotify AB, Uber Technologies, Inc.
- Telecommunications: Iliad, Vodafone Group
- Blockchain: Anchorage, Bison Trails, Coinbase, Inc., Xapo Holdings Limited
- Venture Capital: Andreessen Horowitz, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, Union Square Ventures
- Nonprofit and multilateral organizations, and academic institutions: Creative Destruction Lab, Kiva, Mercy Corps, Women’s World Banking
About the Currency
Social network Facebook is set to launch its own virtual currency- Libra- next year enabling users to transact through a digital wallet on WhatsApp and Facebook Messenger. The American company has floated an independent subsidiary Calibra for its bitcoin business. Separately, it has formed a Libra association for the cryptocurrency with 27 members including MasterCard, PayU and Uber to ensure the virtual currency is accepted by merchants across the world.
“We aspire to make it easy for everyone to send and receive money just like you use our apps to instantly share messages and photos,” Facebook founder Mark Zuckerberg wrote in a post on the platform on Tuesday. Calibra will build services that let users “send, spend and save Libra, starting with a digital wallet that will be available in WhatsApp and Messenger and as a standalone app next year,” he said. “We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure, and trusted framework underpins this new system,” the whitepaper stated.
Paying for an Uber ride with Libra
Much as one would like to pay for an Uber ride with the Libra cryptocurrency, under the current regulatory framework in India, this will not be possible. To outline the reasons, the April 2018 RBI notification has firstly prohibited entities regulated by it, (such as banks and financial firms) from dealing with virtual currencies, or from providing services like maintaining bank accounts, settling, trading, giving loans, etc., in relation to cryptocurrencies.
Banks in India are thus prevented from supporting the Calibra wallet as proposed by Facebook, thus preventing apps like Uber from using it. This would prevent, say, the conversion of fiat currencies (the Rupee) in your bank account into the Libra, for payment on the app.
Payments via Indian currencies only?
Here, one can also recall an RBI notification issued in 2014, to deal with two-factor authentication for card payments via the Uber app not being in place. While dealing with the issue, the RBI had directed that where Indian bank-issued cards were used for payment for goods and services purchased in India (for example, paying via a card for a ride via Uber in India), then two conditions are to be met: The first is that the transaction must settle in Indian currency only and the second is that the transaction must be acquired through a bank in India. It was this notification that had driven Uber to adopt payments via the domestic mobile wallet Paytm, which is licensed as Payments Bank by the RBI, in order to ensure compliance with domestic payment laws.
The risk and reward of building the new PayPal
In cryptocurrencies, Facebook saw both a threat and an opportunity. They held the promise of disrupting how things are bought and sold by eliminating transaction fees common with credit cards. That comes dangerously close to Facebook’s ad business that influences what is bought and sold. If a competitor like Google or an upstart built a popular coin and could monitor the transactions, they’d learn what people buy and could muscle in on the billions spent on Facebook marketing. Meanwhile, the 1.7 billion people who lack a bank account might choose whoever offers them a financial services alternative as their online identity provider too. That’s another thing Facebook wants to be.
How does Libra work?
By now you know the basics of Libra. Cash in a local currency, get Libra, spend them like dollars without big transaction fees or your real name attached, cash them out whenever you want. Feel free to stop reading and share this article if that’s all you care about. But the underlying technology, the association that governs it, the wallets you’ll use and the way payments work all have a huge amount of fascinating detail to them. Facebook has released more than 100 pages of documentation on Libra and Calibra, and we’ve pulled out the most important facts.
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