When Libra was announced on June 18th, it seemed like an alarming new front in Facebook’s megalomaniacal expansion. Having captured billions of users and tens of billions of dollars in annual profits, the company would now be taking over fiat currency itself! The company’s head of blockchain, David Marcus, laid out his plan for Libra in a detailed white paper, with some of the financial world’s most powerful companies have already signed on to help govern the new currency as part of the Libra Association. It was Facebook’s vision for an international currency, and based on the company’s partners, it seemed unstoppable.
Paypal’s changed their mind
PayPal has become the first company to drop out of Facebook’s Libra project, as the embattled project continues to face queries from regulators around the world.
Libra is technically an association backed by 28 — now 27 — multinational companies and nonprofits, although Facebook takes the lead, and a Facebook subsidiary, Calibra, is intended to be the main way consumers will interact with the project. Each of the companies involved had to pledge $10m into a common pot to join the Libra Association.
PayPal did not give a reason for leaving the project. The company said in a statement: “PayPal has made the decision to forgo further participation in the Libra association at this time and to continue to focus on advancing our existing mission and business priorities as we strive to democratise access to financial services for underserved populations’’.
PayPal’s decision is a blow to Facebook and its cryptocurrency ambitions, which are based on the premise that Libra will be controlled not by Facebook but by a broad network of partners.
The effort is the most far-reaching attempt by a mainstream company into the world of cryptocurrencies, with Facebook executives having detailed plans for how Libra could become the foundation for a new financial system not controlled by today’s power brokers on Wall Street or central banks.
Since Libra’s unveiling, the project has gotten a chilly reception from some policymakers. . President Trump and other federal officials criticised the effort, with Treasury Secretary Steven Mnuchin saying he was “very uncomfortable” about the plan. Many other politicians, regulators and central bankers around the world echoed their skepticism.
Federal Reserve Chairman Jerome Powell signaled skepticism about Facebook’s plans for Libra : “I don’t think that the project can go forward … without there being broad satisfaction with the way the company has addressed money laundering, all of those things,” Powell said in testimony before the House Financial Services Committee. He added that the project raised “serious concerns” for regulators.
According to The New York Times, Facebook’s partners also quickly distanced themselves from the Libra project. Some had signed non-binding agreements, knowing they weren’t obliged to use or promote the digital token and could easily back out if they didn’t like where the initiative was going, executives at seven of the partner companies told The New York Times in June.
Some partners were wary of how Facebook’s issues with regulators around the world, including privacy and the uncertain legality of cryptocurrencies, might affect Libra. Many of the companies rely on good relationships with financial regulators. In back-room conversations, several partners have complained that Facebook did not do enough before announcing the project to get regulators comfortable with Libra.
That reflects significant uncertainty about how Libra will actually work, and if it’s even possible to launch a network like this within the bounds of the law. Facebook is trying to build a payment system that combines the best characteristics of blockchain and conventional networks. But the result may wind up just being a contradictory mess that leaves almost everyone dissatisfied.
The news that PayPal was the first to drop out is likely to carry a particular sting because Facebook’s head of blockchain David Marcus used to be the president of PayPal!
As the news about disenchanted partners leaked out, Mr. Marcus took to Twitter to defend the Libra project and acknowledge the struggles it has faced: “Change of this magnitude is hard and requires courage and it will be a long journey. For Libra to succeed it needs committed members.”
According to qz, Mark Zuckerberg recently said in an interview that he was committed to making Libra happen. But he also said Facebook might not be able to push out the first Libra coins by next year, as the initial plan envisioned.
The Libra Association, a Swiss organisation that Facebook created to oversee the project, is planning a meeting for partners in Geneva this month to formalize their participation. Even with PayPal’s departure, 1,500 companies and other organisations have expressed an interest in becoming partners, said Dante Disparte, the association’s head of policy and communications.