Could Facebook’s Libra be the Catalyst for a Blockchain Revolution?

We’ve been reporting periodically on the developments of Facebook’s proposed cryptocurrency, Libra. When the announcement first came out in June, the response from the crypto community ranged from hard opposition to rampant excitement.

A tech giant launching its own form of money? The prospect seemed momentous, with the potential to truly disrupt finance as we know it.

But recent developments suggest that neither critics nor proponents will get to see the project prove its mettle any time soon. On October 4, PayPal officially pulled out of the Libra Association, with key players close to the payments network citing the lack of regulatory preparation too great a risk.

More recently, an executive at Calibra, a Facebook subsidiary, told reporters in Lisbon that the stablecoin project won’t scale like social media and could take years – even decades – to catch on.

US lawmakers have since come out in full force, asking Facebook to stall its plans until the two sides can find some kind of common ground.

Mark Zuckerberg and his team seem to be taking the slow and cautionary route. Facebook Libra still has no official launch date.

“Part of the approach and how we've changed is that now when we do things that are going to be very sensitive for society, we want to have a period where we can go out and talk about them and consult with people and get feedback and work through the issues before rolling them out,” Zuckerberg told Nikkei.

Despite the uncertainty, one thing is certain: the Facebook Libra project is likely to make a significant impact. If and when it launches, it could set the precedent for more privately issued forms of currency, shifting the global economy closer to a competition of currencies.

Financial disruption on a global scale

Facebook’s announcement of Libra has spurred central banks to consider the viability of a national cryptocurrency. Some fear that Libra’s global nature and massive potential user base could usurp some of the functions of national currency altogether.

In July, The Financial Times reported that the Bank of International Settlements (BIS) would start supporting central banks trying to issue their own digital assets. This came after a January report in which the BIS found that 70% of surveyed central banks were working towards their own digital money.

The US Federal Reserve Chair Jerome Powell noted that due to the sheer size of Facebook’s userbase (upwards of 2 billion), Libra could be “systematically important very quickly”.

Banks and blockchain

In September, Germany’s largest bank, Deutsche Bank, joined JPMorgan’s blockchain-based network, the Interbank Information Network (IIN). The network now has at least 320 banks that will be swapping global payments data on the Ethereum network.

JPMorgan’s chair of global research, Joyce Chang, told Bloomberg in January, “Blockchain isn’t going to reinvent the global payment system, but it will provide marginal improvements. The most meaningful impact will probably be three to five years away and mostly on trade finance.”

Wells Fargo, the world’s fourth-largest bank, recently announced it would also soon be launching its own “Wells Fargo Digital Cash”. The People's Bank of China is expected to launch a digital version of China’s national currency, the yuan, either later this year or in 2020.

Are we likely to now see central banks start rolling out their own digital currencies? Not only would this improve global banking operations, but it could provide much-needed integration for crypto market liquidity.

As more banks and private institutions entertain the idea of issuing their own stablecoins, dominant currencies like the dollar will face increasing competition.

In an industry where cryptocurrencies are mostly shunned as too risky, it's clear that a number of banks are preparing for a future in which certain aspects of the global financial system migrate to the blockchain.

The economist Friedrich Hayek is famously attributed with foreseeing a future of privately issued, competing fiat currencies. If recent trends are anything to go by, Hayek’s “denationalization of money” might just be a lot closer than we think.