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Started spectacularly, then went downhill

A year later, the current LIBRA seems to have deviated from the original direction. 28 well-known companies such as VISA, Mastercard, eBay, PayPal, and Uber have joined the LIBRA Association. However, due to the uncertainty of the regulatory system, PayPal, Mastercard, VISA, eBay, and Vodafone have now announced their withdrawal. Most of the businesses that replaced them were cryptocurrency businesses, with the exception of Shopify (which, as of July 28, had the largest market capitalization in Canada). Great changes have taken place in the membership structure of the association, which was mainly composed of enterprises within the system in the past.

More importantly, LIBRA substantially revised the content of the white paper in April 2020. What worries the industry the most is that LIBRA, which once dreamed of replacing banks, has changed its goal to provide a single regional currency and become a pure payment and settlement platform. In the first version of the white paper, the goal of LBR is to anchor a basket of legal currencies, but the revised white paper states that in addition to anchoring multi-currency LIBRA, it will also launch LIBRA anchoring a single legal currency. In this regard, LIBRA stated, "According to the original plan, if the circulation of LBR reaches a considerable scale, multi-currency Libra (LIBRA anchoring multiple fiat currencies) may interfere with monetary sovereignty and monetary policy, so it is decided to issue anchor orders at the same time. One legal currency LIBRA", emphasizing that this modification does not mean that LIBRA has given up its plan to issue multi-currency LIBRA.

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LIBRA Interim Evaluation

1. LIBRA stands still, and giants in the cross-border payment industry have made big moves

So, can LIBRA maintain its current position? It seems that the momentum of LIBRA is far less than when the white paper was just released in 2019. However, if it is not for various related projects to make big moves one after another, LIBRA's status may not be shaken.

Regrettably, when LIBRA was standing still, giants in the cross-border payment and clearing industry had already taken action. First of all, MasterCard is continuously cooperating with relevant project parties to promote the development of cryptocurrency cards. Since last year, Mastercard has launched several cryptocurrency debit cards. VISA also established a separate cryptocurrency department, and not long ago issued an announcement to recruit blockchain engineers. PayPal even directly announced its entry into the cryptocurrency buying and selling industry, and plans to start providing services as early as this quarter. Various cross-border payment settlement projects in Western countries alone are enough to pose a threat to LIBRA.

Facebook CEO Mark Zuckerberg personally emphasized during the hearing that he must be vigilant against China's actions. Dandy Demeter, vice chairman of the LIBRA Association, also said, "Other payment and clearing companies and Celo (competitive organizations with similar functions to the LIBRA Association) have formed a competitive relationship with LIBRA, but our real competitor is still China." Under the leadership of the Chinese government, the central bank's digital currency "DCEP" jointly created by the People's Bank of China, Alipay and WeChat Pay is preparing to issue, and China has launched related pilot experiments on a large scale. As of the fourth quarter of 2019, the number of WeChat Pay users has exceeded 800 million. If the Chinese government forces 1.4 billion people to use digital currency for transactions in their daily lives, Mark Zuckerberg’s worries will become a reality.

2. In the face of regulatory risks, what preparations has LIBRA made?

LIBRA has not "officially" given up its dream of providing inclusive financial services to the financially disadvantaged as the industry feared. However, in order to realize this service, it is necessary to first design a set of cross-border universal payment and KYC (customer identity verification) and other systems. The key cross-border payment system is particularly difficult to design. In this regard, Vice Chairman Demeter said, "Cross-border payments belong to the category of cryptocurrency project licensing approval and VASP (cryptocurrency operators). In order to deal with regulatory risks, we have decided to continue the current managerial model." Only by reducing variables can we resist the risk of international supervision.

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Even so, we still cannot assert that LIBRA has declined

As people predicted, the uncertain regulatory risks have made LIBRA restrained a lot. Everything from partners to white paper content has been reduced. Even so, we still cannot assert that LIBRA has declined. According to LIBRA's proposition, when the project released a grand vision, it aroused the vigilance of the regulatory authorities. Now that the project has narrowed its content, it has reduced regulatory risks.

Similarly, Kim Young-il, head of business strategy at Danal FinTech, a domestic blockchain payment settlement project "PAY PROTOCAL," also said, "I personally think that it is a rational decision for LIBRA to modify the white paper plan. Financial services and people People who are familiar with financial services may see this concept as a good idea to provide financial services to places without banks. The key point is that for LIBRA’s target service group—the financially disadvantaged , this concept may not make much sense. It is better to focus on payment services now, which can gain more support from financially disadvantaged groups.” He added, "It is the right direction to seize areas with little regulatory risk first, and then gradually expand services to achieve the original goal."

JOIND Reporter Park Sang-geol park.sanghyuk@joongang.co.kr

JOIND Reporter Park Sang-geol park.sanghyuk@joongang.co.kr