Daily Management Review

Host Of Firms Leaves Facebook’s Libra Project – Here’s Why


Many were concerned that the social media company Facebook would take over digital currency market after it announced the launch of its digital currency Libra on June 18th. Facebook has already pocketed billions in users of its social media platform and billions in ads revenues.
A detailed white paper published by the company’s head of blockchain, David Marcus explained the detailed plans for Libra. It also had a list of some of the most powerful companies of the financial world already members of the Libra Association – a group of companies backing the development and governing of the currency. This new global currency as visualized by Facebook seemed unstoppable because of the type of backing it had.
However things have changed since then. Paypal was the first of the partners to leave the Libra association at the beginning of this month. It was followed by the exit of Visa, Mastercard, Stripe and Mercado Pago from the project on October 11. This was followed by eBay.
This mass exodus meant that the Libra Association no longer had the backing of any major US payment processor. This was a sudden and dramatic turnaround for Libra and the first indication that the backers of the digital; currency had set wrong expectation from it.
This exodus of the companies within a very short period of time also has a timing significance. The first ever Libra Council meeting comprising of all of the founding members is set to be held in Geneva on October 14th. That meeting will decide on the roles that would be assigned to the different parties as well as iron out the details of the governance questions which were not detailed in the white paper in June. That would create a formal charter for Libra and it is expected that each member will sign their name to the new agreement.
However according to 4experts, this process means that specific parties will have to make a lot of specific commitments and therefore they said that the bets best time for exiting the Libra Association was before the charter was formulated and signed. Analysts also are of the opinion that the quick exit of the companies is not very destructive for Libra as it might appear. Those who would be signing the charter would possibly be doing so for the longer time period.
Analysts also see enough reasons for the companies to leave the Libra Association. All of the companies that exited the association, except eBay, are all payment processors and therefore those companies have some very specific regulatory requirements in tackling fraud, money laundering and enforcing sanctions. There is a realization among governments, based on their experience with other digital coins that allows for anonymous cross border money transfers, it would be difficult to implement those financial safeguards listed earlier. And payment processors would be specifically held responsible for any violation of regulations.
And comments from United States lawmakers have indicated that Libra would make it easier for terrorists and money launderers to use it to their benefits and companies like Visa and Mastercard and the like will bear the bulk of the blame.
That was the main reason that the companies decided to quit the Libra project, said analysts.