We
are seeing breakneck changes in the financial world, particularly in payment: cash
is out, PayPal is now – as is Blockchain, actually – and Facebook’s Libra could
be the near future. More transactions are processed digitally; coins and bills
have been pushed aside. Hence, it comes as no surprise that the European
Central Bank (ECB) now is pondering launching a digital currency, not least
with the goal of countering Facebook’s aforementioned, highly controversial
proposal. Things are developing rapidly; they harbour many opportunities, but
also come with many unanswered questions.
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Social
media giant Facebook is planning to join forces with fellow campaigners and
create nothing short of a global currency. For this purpose, the Libra
Association, based in Switzerland, was founded. Facebook
is involved with the newly founded company Calibra and has a leading role as
initiator. Telecommunications provider Vodafone, music streaming provider
Spotify, and ride-hailing company Uber also are in on it. While plans included
having 100 members on board when business begins in the first half of 2020,
some of the prospective partners, including MasterCard, Visa and PayPal, have
bailed already.
Nevertheless,
the remaining parties are aiming high: the Libra Association has announced its
goal of developing a simple global currency with a financial infrastructure for
billions of people. Libra plans to tear down barriers such as transaction costs
and to simplify financial systems.
The
core of the matter is to offer banking services while – as opposed to Bitcoin –
avoiding major fluctuations in prices. This would be an alternative to the euro
that would be beyond the ECB’s control and its management would be exclusively private.
Unanswered questions regarding compliance and
supervision
Is
this how we should picture the situation – Facebook, with its close to two
billion users worldwide and headquarters in the US, as the driver and founder
of a Switzerland-based organisation that issues money? Without any apparent
legal supervision so far? Clearly the idea makes alarm bells go off among
consumers and data protectors alike. In addition, Libra’s approach begs a
number of uncomfortable questions regarding taxation, cybersecurity, money
laundering and terrorism financing.
According
to the Libra Association, co-operation with the financial sector, the
regulatory authorities and experts in diverse industries is central because
this is the only way for the new system to guarantee sustainability, security
and trust. This is a good point and the right insight. It remains doubtful,
however, whether the financial sector and, in particular, supervisory
authorities have any interest at all in this. The fact the ECB is even
considering going it alone indicates that Libra will not be received with open
arms. Rather, there has been massive criticism on the part of diverse central
banks, governments and regulatory authorities around the world. Many find the
rushing ahead unnecessary and insensitive.
Another
key point is complex. Libra intends to be independent. Independent like a
central bank? Perhaps politically, but economically? It is in the nature of
things that an organisation such as Libra whose members are commercial
enterprises cannot be entirely independent; becoming a member is a strategic
decision for which a company can expect something in return.
Trust
in blockchain technology has been greatly weakened, not least by
cryptocurrencies such as bitcoin. Extensive fluctuations have resulted in
blockchain having predominantly enticed traders and gamblers and not people
looking for a reliable means of payment. Libra wants to become a better example
through a monetary reserve. For every newly issued Libra, a basket made up of
bank deposits and short-term government bonds will be used as security. The
plan is good and could be viable, provided controls are possible at any time.
Let’s not forget that a currency is only a currency if it is accepted and used
by all market participants. However, why the effort? Central-bank money already
offers this option, so why not build on it?
Is Libra the future of our payment system?
Certainly
not in the way it is outlined above; there are too many questions. Success does
not come from brash demeanour alone. While the longing for a digital currency
is logical in a world turning more and more to digitalisation, companies such
as Facebook should not exploit this longing to vindicate their attack on the
state’s monopoly on money.
This is why it would be more than
preferable if the EU, for example, or large nations, throw their weight behind
the joint use of cryptocurrencies, the price of which would be tied to a
national currency, possibly in the form of e-euros
or e-dollars as reserve currency, as stable, digital money.
What are the implications for our
industry?
First and
foremost, we at AirPlus believe in new developments. However, we need to
refrain from following every new trend on a whim. Of course, we have addressed
a number of topics dealing with cryptocurrencies and have had many
conversations. In all this, it has become clear to us that despite the global
hype, cryptocurrencies so far remain a marginal issue in connection with
payment – at least in our industry. I believe that one reason is simply the
lack of a business case in the business travel segment. The risks for
individual companies are excessive because payments must be legal and stable.
Also, we do not need what is referred to as distributed ledger technology, that
is, documentation of specific transactions, because in our case all the people
and companies participating in the credit card value chain already have complete
datasets of all their transactions at their disposal.
Developments headed in the right
direction
All of this
is just a snapshot. Libra’s ambitions are unquestionably going too far, but its
intention to offer a straightforward payment option for many people is
laudable. Making things easier where business travel payment is concerned is
also our approach at AirPlus. B2B is not only about financial obstacles, it
also is about time constraints. Payment transactions, invoicing and settling
costs require time which companies prefer to invest in their respective
business. Technology and progress can help. Whatever will be developed, by
Libra or by other initiatives, can help us as well. We will continue to observe
the blockchain developments closely and support them despite the many
questions. Humanity has made great strides in payment – from exchange in kind
through coins and paper money to virtual payment methods. Development will go
on and simplify life further. And it is precisely here that all market
participants in the payment sector are in line, no matter what the discussions
about Libra may be.