Published 20:54 IST, October 12th 2019

Facebook’s Libra currency battered by defections, pushback

Facebook faces a rough road ahead with Libra, but defections by high-profile partners are still unlikely to spell the end for the digital currency on Friday.

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Facebook faces a rough ro ahe with Libra, but defections by high-profile partners are still unlikely to spell end for digital currency. On Friday, Visa and MasterCard anunced ir departures from Libra project, as did e-commerce giant eBay and payments startup Stripe. Last week, PayPal became first major company to drop out of Libra. exodus comes amid growing — t to mention stronger-than-anticipated — a regulatory pushback against Libra in U.S. and elsewhere.“It’s a big setback for m but it’s t end,” said Gartner analyst Avivah Litan. Facebook CEO Mark Zuckerberg will appear before Congress later this month to talk about company’s plans for Libra. Rep. Maxine Waters, California Democrat who hes House Financial Services Committee where Zuckerberg will testify on Oct. 23, called Libra “a new Swiss-based financial system” that potentially is too big to fail and could require a taxpayer bailout.

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Libra’s supporters say it could open online purchasing to millions of people who do t have access to bank accounts and could reduce cost of sending money across borders. It’s easy to see how attractive an alternative like Libra could be to people in countries beset with hyperinflation, such as Venezuela and Zimbabwe. But Facebook alrey faces scrutiny over its poor record on privacy and its dominance in social media, messaging and related businesses. Will people trust it to create a new, global currency? Libra also poses new questions for social network: Given that cryptocurrency is lightly regulated w, if at all, how will financial regulators oversee Facebook’s plan? And just how much more personal data will this give social media giant, anyway? Litan said Facebook can still easily launch Libra in countries with pushback, of which re are plenty. She also dismissed idea that Facebook needs partner companies such as MasterCard or Visa in order to keep Libra afloat.

“ only reason y want companies is because it looks good,” she said. “It was never a democratic blockchain. It was always run by Facebook and a couple of financial companies that were going along for ride.”w, those are just t going on ride.“You have to remember, this is blockchain. This is internet. It’s pretty much unstoppable,” she ded.

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Regulatory challenges

financial industry is more heavily regulated than internet companies — especially in U.S., where tech companies have often been given free rein. Companies creating Libra are in for a “rude awakening” if y expect same model of light regulation, said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington. She expects Libra will fall under U.S. regulations opted in wake of 2008 financial crisis. Which ncy will oversee venture will depend on what currency system does, she said. In U.S., he of House Financial Services Committee wants Facebook to suspend plans for a new currency until Congress and regulators are able to study it more closely. In July, Waters and or committee Democrats sent a letter to Facebook requesting a halt on moving forward with currency and with digital wallet, called Calibra, which would be used in new currency system. House Democrats also have threatened legislation that would block big tech companies from getting into banking. One hurdle Facebook and its partners will face is potential for criminals to use it for money laundering and fraud, given pseudo-anymous nature of Libra and or digital currencies. Facebook said it will comply with all existing financial regulations.

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Privacy pushbacks

Facebook has been dogged with questions about users’ personal data, especially since Cambridge Analytica scandal hit last year. That appears to be part of reason Facebook created a nprofit oversight association to govern Libra. It also created a subsidiary, Calibra, to work on techlogy, separately from its main social media business. Still, Facebook is “going to get access to a lot of financial data,” Forrester analyst Aurelie L’Hostis said. “What are y going to do with that information and what are y going to put in place to safeguard that information?” Cryptocurrencies such as Libra store all transactions on a widely distributed, encrypted ledger kwn as blockchain. Libra is designed so transaction amounts are visible, but transaction participants can be anymous — at least until y move money into real-world accounts. Facebook said people can keep ir individual transactions from appearing on blockchain by using Calibra’s wallet app, though in that case, Calibra itself would have people’s data. Calibra said it won’t use financial data to target s on Facebook. It also said it won’t share financial data with Facebook, though re are exceptions that haven’t been fully spelled out, including situations where data sharing would “keep people safe.”

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20:39 IST, October 12th 2019