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US lawmakers are holding a hearing today to learn more from Facebook about their role in the planned Libra* cryptocurrency. Many are concerned as to whether the digital currency threatens the stability of the US dollar and other government-backed currencies or could infringe on consumers’ privacy. All are valid concerns. But policymakers may end up missing the larger point.
Our mission is to use our blockchain technology to promote financial inclusion and enable people to store, save and securely move their money instantly and at low cost.
People with low incomes pay a disproportionately high price for financial services. Cross-border remittances, money orders and transfers are expensive and slow, and people lower on the economic ladder are more likely to turn to predatory alternatives like payday loans.
Accessing basic financial services is an obstacle to economic advancement, not just for billions of individuals but also for small businesses and entrepreneurs that face high transaction costs, a lack of capital and other barriers to connecting with the global marketplace.
Given this reality, a simple question arises: Why have the same technological advances that have transformed how we communicate and do business not been applied to solving the challenges of accessing money and financial services? We can provide better answers to billions of people to lower the barriers and costs they face in the financial system.
That is what policy makers should consider with regard to Libra.
To be successful, Libra needs to earn widespread trust as a global currency for everyday transactions and ensure it functions within national and international regulatory, consumer protection and law enforcement frameworks.
Yes, Libra was incubated at Facebook, which has created worldwide attention and sparked concerns among lawmakers. But going forward, the digital currency will be entirely operated by the Libra Association, an independent nonprofit member-based organization. The 28 founding members include social impact organizations Kiva, Mercy Corps and Women’s World Banking; payments and technology companies, such as Mastercard, PayPal, Visa, eBay, Lyft, Spotify, Uber, and Vodafone — as well as blockchain and venture capital firms.
This membership will grow to at least 100 diverse, global partners by the time the digital currency launches some time next year. Facebook’s influence and voting rights will be the same as any other individual member. In addition, tech developers, startups and enterprises from all over the world will be able to build innovative services to spur competition while augmenting traditional operating standards in the financial system.
Here’s how it will work. This new digital currency will run on a decentralized global blockchain network that enables highly secure transactions while reducing reliance on powerful gatekeepers or fee-charging intermediaries. An ecosystem of digital financial services for everyday uses, like sending money to relatives overseas, will live on that network.
We believe this digital currency can unleash innovative, low-cost, and user-friendly services just as the internet revolutionized information sharing. We hope Libra will expand access for 1.7 billion unbanked or underbanked people around the world — and improve financial services for many others.
Designed to preserve value and avoid volatility, Libra will be fully backed by a reserve of assets consisting of major currencies, including US dollars and euros, so holders can trust the currency’s stability and be able to exchange it for other currencies when needed. The association will manage the reserve and increase or decrease the amount of Libra in circulation based on market demand.
A critical job of the association is to engage with governments and central banks. We have a common interest in the stability of national currencies and banking systems, in strong consumer protections, and in providing financial services to all people. We shared our plans well in advance so we can get feedback, and we will remain open and collaborative leading up to the launch of Libra in 2020.
We have published the code used to create the Libra software, so our new technology can help create a financial infrastructure to empower billions of people, though it will take time for the digital currency to be widely adopted. And while technology will not on its own solve the problems of financial inclusion, it can accelerate collective action.
Collaboration with the financial sector, social impact organizations, regulators and experts across various industries is the only way to ensure that a sustainable, secure and trusted framework underpins this new system —and that it delivers a leap forward for economic empowerment on a global scale.
*On December 1, 2020, the Libra Association was renamed to Diem Association.