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New Zealand's longest-running online daily news and commentary publication, now in its 25th year. The opinion pieces presented here are not purported to be fact but reasonable effort is made to ensure accuracy.

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Is this big or what?

19 June 2019

There was a time when only the government of a country could mint money that was legal tender.

Although there has been nothing to stop groups of people creating their own trading currencies, such things only had a value because that value was agreed on by all those who used it. Outside such a group, these informal currencies had no value at all -- and that significantly limited their ability to challenge the "legal tender" created by government.

Cryptocurrencies have changed that somewhat and now, thanks to services that are happy to convert between crypto and legal tender or vice-versa, there are now a growing number of independent "coins" that can be used to buy or sell real-world items and services.

This must surely be a bit of a challenge to a nation's ability to control its own finances and capital. With the volatility of crypto-currencies however, they have not been widely accepted as an alternative to the official currencies of the world. In fact a report I read recently said that the vast majority of people holding Bitcoin are doing so purely for speculation purposes and there are actually very transactions represent the sales of a product or service.

However, that could be all about to change, and change dramatically.

Facebook has announced its intention to become part of the Libra Network by way of a subsidiary it is calling Calibra.

By integrating a digital wallet for Libra into its offerings, Facebook may well provide the crucial kick-start needed to make crypto-currency an important part of every-day life for billions of people around the globe.

If this initiative succeeds, PayPal should be very worried and governments may need to come up with clever plans to ensure that it does not erode their own economic control mechanisms.

But what is The Libra Association, the group behind Libra?

Well, wouldn't you know it, it's a Swiss "not for profit" organisation which has been set up to try and create a global currency that does not require bank accounts.

Trust the Swiss to be at the forefront of anything to do with international currencies eh? ;-)

Most national currencies are backed by some form of reserve (ie: gold or other assets against which the "paper money or coin" is secured. Libra talks about a reserve but I couldn't find anything to indicate the percentage of reserve being held or in what form it is. Given the wealth of Facebook, I really don't think there's much to worry about in that area though... even if there was a run on the currency.

So what will a ubiquitous crypto-currency give us?

In theory, it could provide all the convenience of a bank-backed debit card but without the costs. Unless you need to cash-in or out, there's no need for banks to even get involved in day-to-day transactions. And yes, we're really talking about day-to-day stuff.

The goal is for Libra to be so widely accepted that using nothing more than your smartphone, you'll be able to use it to pay for something as trifling as a coffee or a bus ticket.

Hang on... can't we do that already, using our EFPOS cards and PayWave?

So tell me again, what's the advantage of Libra?

Well perhaps its biggest use will be in person-to-person transactions. Need to send some money to a friend, to family back home or such?

Well your Paywave Visa debit/credit card isn't going to help you there... because odds are that your friend and family aren't registered as merchants and therefore have no way to bill your cards for the amount you wish to send them. This is where PayPal made its fortune... by allowing money to be transferred between individuals with great ease.

This is where Libra may well find its niche.

Of course it's early days and even Facebook's involvement is no guarantee that Libra will become the success that is hoped for it. People are funny creatures and they don't always take the best or most obvious path. It will be very interesting to watch and see how this all pans out and what (if anything) governments will do to reign in the obvious potential for things such as money laundering, the repatriation of the proceeds of crime, etc.

As we've seen in the past, the Swiss have, at times, not been averse to turning a blind eye to exactly where the money has come from or where it's going to -- which is why I find it so interesting that the country is involved in this initiative.

There are some aspects of the Libra Association that are a little worrying... such as the clearly stated policy that each $10m invested by council members gives them another vote on that council. Hmmm... I guess that's no different to buying voting shares in a corporation but since this is a "not for profit"...

What do readers think?

Could this be the leg-up that crypto-currency needs to become a mainstream thing?

Given PayPal's "all care, no responsibility" attitude, and their willingness to make decisions based on biases, prejudices and political agendas -- could Libra be a far better alternative for everyone?

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