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Home / Business / Facebook's Libra currency struck by defections, pushback

Facebook's Libra currency struck by defections, pushback



Facebook is facing a tough road ahead with Vågen, but it is still unlikely that the dropout from high-profile partners will spread the end for the digital currency.

On Friday, Visa

V, + 1.25%

and MasterCard

MA, + 0.76%

announced their departures from the Vågen project, as did the e-commerce giant eBay

EBAY, + 1

.63%

and payment start Stripe. Last week PayPal became the first major company to drop out of Vågen. The relocation is in the midst of increasing – not to mention stronger than expected – regulatory backlash against Weight in the US and elsewhere.

"It's a big setback for them, but it's not the end," said Gartner analyst Avivah Litan. [19659002] Facebook

FB, + 2.31%

CEO Mark Zuckerberg will appear before Congress later this month to talk about the company's weight plans. Rep. Maxine Waters, the California Democrat who heads the House Financial Services Committee, where Zuckerberg will testify Oct. 23, called Libra "a new Swiss-based financial system" that is potentially too big to fail and may require a taxpayer's rescue. [19659002] The followers of Libra say that it can open purchases online for millions of people who do not have access to bank accounts and can reduce the cost of sending money across borders. It is easy to see how attractive an alternative that Libra can be to people in countries exposed to hyperinflation, such as Venezuela and Zimbabwe.

But Facebook already has the face to investigate the bad behavior about privacy and its dominance in social media, messages and related issues. businesses. Will people trust it to create a new, global currency? Libra also raises new questions for the social network: Given that cryptocurrency is easily regulated now, if at all, how will financial regulators oversee Facebook's plan? And how much more personal information will this still give the social media giant?

Litan said that Facebook can still easily launch Weight in countries without pushback, which is enough. She also dismissed the idea that Facebook needs partner companies like MasterCard or Visa to keep Weight afloat.

"The only reason they want the 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 who were going on the trip. "

Well, they just aren't on tour.

“You have to remember, this is blockchain. This is the Internet. It's pretty much unstoppable, "she added.

REGULATORY CHALLENGES

The financial industry is more regulated than internet companies – especially in the United States, where technology companies have often been given free rein. a "rude awakening" if they expect the same model for light regulation, said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington.

She expects the weight to fall under US regulations that were adopted in the wake of the 2008 financial crisis "The agency that will oversee the effort will depend on what the currency system does," she said.

In the United States, the House Financial Services Committee leader wants Facebook to set plans for a new currency for Congress and regulators can study it more closely. [19659002] In July, Waters and other Democrats sent a letter to Facebook asking them to stop moving forward with the currency and the digital ale the wallet, called Calibra, which would be used in the new currency system. House Democrats have also threatened legislation that would prevent large tech companies from going bankrupt.

One obstacle Facebook and its partners will face is the potential for criminals to use it for money laundering and fraud, given the pseudo-anonymous nature of Libra and other digital currencies.

Facebook said it would comply with all existing financial regulations.

PRIVACY PUSHBACK

Facebook has been questioning users' personal information, especially since the Cambridge Analytica scandal hit last year.

It appears to be part of the reason why Facebook created a nonprofit supervisory association to govern Libra. It also created a subsidiary, Calibra, to work with the technology, separate from its main social media business.

Facebook will still "access a lot of financial data," said Forrester analyst Aurelie L'Hostis. "What should they do with that information, and what will they have in place to safeguard that information?"

Cryptocururrency like Libra stores all transactions on a widely distributed, encrypted ledger known as blockchain. The scales are designed so that transaction amounts are visible, but transaction participants can remain anonymous – at least until they move money into real-world accounts.

Facebook said that people can prevent their individual transactions from appearing on the blockchain using Calibra's wallet app, but in that case, Calibra would even have people's data.

Calibra said it will not use financial data to target Facebook ads. It also said it would not share financial data with Facebook, although there are exceptions that are not fully spelled out, including situations where data sharing would "keep people safe."

IS FACEBOOK FOR BIG?

Congress, the Federal Trade Commission, and the Department of Justice are all looking at whether Big Tech giants like Facebook and Google have grown too big.

Adding another bigger business would make Facebook bigger – if Libra takes off as intended – but it might not raise big antitrust flags, said New York University's law professor Eleanor Fox.

"It is a gateway into a new field and may actually reflect an increase in innovation," she said. 19659002] Sarah Miller, Deputy Director of the Open Markets Institute, which advocates monopoly, said it was "insane" to trust that Facebook is launching a global cryptocurrency when it already faces regulatory control worldwide over data privacy.

"The FTC needs to rein in Facebook before the company also exposes our financial information and currency systems," she said.


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