Facebook created Libra to serve as a “simple global currency and financial infrastructure that empowers billions of people” (Libra Association Members, 2019). The launch and integration of Libra hopes to expand accessibility to global payments, while at the same time bringing an increased sense of security, integrity, and responsibility into global payment systems. The irony of it all is that a cryptocurrency created to increase trust and integrity in the market is drawing skepticism world-wide. The currency has yet to launch (original plans have a launch date in mid-2020) and it has already been met with a wave of critics questioning the security of a cryptocurrency created by Facebook—a company with a long history of security breaches and compliance issues.
While the future of Libra is still uncertain, it has generated a conversation about security and integrity in the financial industry—especially in global payments. As far as banks are concerned, we are likely to see a decline in foreign exchange transaction costs (i.e. the rates banks charge clients) as a result of the rise of cryptocurrencies and the rise of the financial technology industry. For those concerned with security, the introduction of Libra highlights the importance placed on security and integrity in the financial industry. Currently, banks have lucrative FX payments businesses. However, the high markups attracted Financial Technology competitors starting years ago. More recently, the banks see efforts by Libra and the cryptocurrency market to move into the lucrative FX payments space.
The issues of Libra developing as a cross border payment tool and demand for reliability highlights the importance of awareness. Similarly, corporates are wise to be aware of how much they are paying in FX transactions and why. FX Rate Integrity® is a step in that direction.
Read the Libra Association’s whitepaper here.
-Paola Gasca, Analyst