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Sunday, 7 July 2019

Facebook’s grandiose ambitions for financial inclusion sound great — but Libra may be destined to remain a pipe dream

Facebook’s grandiose ambitions for financial inclusion sound great — but Libra may be destined to remain a pipe dream: The announcement of Facebook’s new Libra cryptocurrency last month was greeted by media fanfare and scepticism in equal measure. What Libra is proposing is potentially revolutionary: a global cryptocurrency capable of delivering mobile banking to the entire planet. But even if we leave aside the regulatory concerns, the limited internet infrastructure in many developing countries mean that Libra in its current form is destined to remain a pipe dream, Patrick Jenkins writes in the FT.

What is Facebook proposing? In its policy document, Facebook pitches Libra as a global cryptocurrency that allows people across the world to store and transfer money using only their Facebook accounts. The bns of people living in developing countries currently unable to open a bank account, transfer money, and secure a loan would be able to achieve all of this through a single app, effectively rendering bank accounts defunct. But what makes Libra truly unique in the crypto sphere is that it would it be backed by a basket of underlying assets, comprised mainly of bank deposits and low-risk government securities. This would help reduce volatility and stabilize the rate of exchange into local paper currencies.

How realistic is financial inclusion? If we assume that Zuckerberg’s intentions are benign, his grandiose ambitions are impressive. But as Jenkins points out, reality often turns out to be disappointing, and there remain serious obstacles to Libra ever becoming workable in developing countries. Around 75% of the 1.7 bn financially excluded people do not have access to the internet. Broadband infrastructure remains rudimentary in many developing countries, and while smartphone ownership is growing, many people are unable to afford the kinds of phones used by consumers in advanced economies. And then there’s the question of transaction fees. The company claims that any charges would be low, but convincing people living in low-income, cash-based economies to pay fees every time they want to make a transfer could prove to be a hard-sell — one that it has so far chosen to ignore.

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