The social network Facebook recently announced the creation of a new virtual currency, the Libra, with the aim of creating a financial infrastructure that is able to facilitate exchanges in every part of the world in everyday life, becoming part of that gap is not covered by the services of financial intermediaries.
The aim, therefore, from what appears, does not seem to create an external economic and financial system alternative to that of the conventional currency managed by the banking system, but, rather, to insert itself in that system absorbing further commercial transactions. On the other hand, it does not appear to be autonomous, as it would not seem that, at least in the launch phase, it can work without the aid of the already existing system used for e-commerce online payments.
One could therefore define Facebook as a complementary and additional system to the existing one, which, on the one hand, involves those people who are currently “unbanked”, ie without an account opened in the bank, on the other, exploits the potential number of Facebook economic operators, which now has more than 2 billion users.
But how can this new currency be framed in the context of cryptocurrencies and virtual currencies that have developed over time?
The nature of Libra: cryptocurrency or electronic money?
Libra is defined as a virtual electronic currency and, therefore, it is not printed in paper form, but moves only in the context of exchanges made thanks to an IT platform.
As far as is known, it will be based on Blockchain technology and will work thanks to a Walletapp (electronic wallet) called Calibra, software or hardware which can be installed on a PC, Smartphone or Tablet and should allow you to manage your account independently in virtual currency. The value of the currency will also be controlled by an entity, called the Libra Association, which will manage the currency and control the value, avoiding fluctuations in the exchange rate, in order to avoid speculation, or financial transactions carried out with the purpose of making a profit from the price change resulting from the sale or purchase on the financial market of the same currency.
From a different point of view, however, it is also defined as a cryptocurrency (like other digital currencies such as Bitcoins) as it is based on Blockchain technology.
In reality, by making a more in-depth analysis of the two categories identified above, the Libra would be different from both and would seem to constitute a separate category.
In fact, electronic money has been defined by the article. 55, Law no. 39 of 2002, implementing a European directive, such as “a monetary value represented by a credit towards the issuer that is stored on an electronic device, issued upon receipt of funds of a value not less than the monetary value issued and accepted as a means of payment from parties other than the issuer”. It is therefore only a payment instrument representative of real money (eg prepaid cards, rechargeable cards, electronic purse) that allows online purchases on e-commerce sites, but does not constitute a new and different currency.
The cryptocurrency instead – a category to which also belong the Bitcoin – can be defined as a virtual currency. Also in this case there is no issue of paper money. But cryptocurrencies are characterized by the use of cryptography not only to guarantee the security of transactions, but also for the phase of money generation. In fact, for Bitcoins and brothers, as already described in a previous article in this column, we talk about a mining activity, which consists of an activity of solving an algorithm generated by a software, at the end of which the currency is obtained. The problem with this system, however, is volatility, which is a characteristic of cryptocurrencies, which generates speculation due to fluctuations in the exchange rate to which they are subjected by nature.
The Libra is therefore presented, on the one hand, as an electronic currency, as it uses an electronic wallet for managing the account, but on the other, however, it distances itself, since it does not seem to be representative of real currency. This solution could facilitate exchanges all over the world, without the need to change the currency to buy in countries with different conventional currencies (for example a Japanese could easily buy in the United States, without changing the Yen in dollars) and without the need to a bank account, a smartphone being sufficient.
Furthermore, this system is combined with cryptocurrencies for the use made of the Blockchain to guarantee the security of the transactions and because it constitutes a new currency, not representative of the conventional ones. On the other hand, it also distances itself from traditional cryptocurrencies, as it does not seem to be generated by the typical mining activity of the latter and should be equipped with mechanisms aimed at controlling the fluctuations in the value of the currency.
The Libra Association, in fact, thanks to a reserve monetary fund, should put in place a monetary policy similar to that of the central banks in order to control the devaluation and the revaluation of the internal currency with respect to those of foreign countries, exploiting a typical principle economy, that of supply and demand. In doing so, therefore, the value of the Libra should be maintained within a range of predetermined values, avoiding the strong exchange rate fluctuations, which tend to make crypto-bills an enrichment tool rather than a simple means of payment alternative to the conventional currency for to trade.
If it is to be traced back to a defined category, the Libra could then seem to belong to the so-called Stablecoin (stable currency): currencies that have operating mechanisms suitable for maintaining the value of the currency stable and, therefore, are not used only as a means of investment , but can be used as an alternative means of trade.
How it will work
From what appears, this currency can be used in commercial exchanges and in transactions between economic operators participating in the system, even if they do not have an account in the Bank and, indeed, it would seem that it is not even necessary to have a Facebook account. The money will be exchanged and managed through a Wallet app called Calibra, an electronic wallet, through which you can exchange money between members, as well as make online purchases.
Moreover, since there is no mining activity, or money generation, it would seem sufficient to convert the currency having legal tender with the Libra and then use it within the dedicated system.
The legal issues that arise with regard to this new currency are different, starting with an age-old question that has affected electronic coins since their inception.
In fact, the first problem concerns the suitability of alternative currencies to pay off a debt in cash. According to the provisions of article. 1277 of the Civil Code, in fact, pecuniary debts are extinguished with currency having legal tender status in the State at the time of payment: for example, in Italy the Euro, in the United States the dollar, in Japan the Yen. Thus, a seller could legitimately refuse a payment in a currency other than that in force in the State. In practice, an Italian seller could legitimately refuse to receive a payment in dollars, while he would be obliged to accept a payment made in Euro.
Moreover, according to this reasoning, the Libra can be used as a form of payment only against those who expressly accept it: according to the act. 1197 of the Civil Code, in fact, the debtor can settle a debt in cash with a different fulfillment only if the creditor consents to it.
Another significant problem is related to Privacy.
Through Libra, in fact, Facebook may be able to acquire much more personal data than it already does. It would therefore be essential to find mechanisms that are able, on the one hand, to guarantee the protection of these data and avoid data breach. On the other hand, they should ensure that the processing of data is carried out in a manner consistent with current legislation. In fact, the effectiveness of the GDPR (EU Regulation 2016/679), created with the aim of guaranteeing greater protection for European citizens regarding privacy, could be compromised if such protection were not guaranteed even by instruments – such as Libra – use on a global scale.
Finally, a significant issue concerns the compliance of such a system with the rules governing banking services and which guarantee the interests of those who use them (customers, consumers, investors etc.). In this regard, however, it should be noted that Libra’s electronic wallet – Calibra – should have been registered in the United States as a company for monetary services and should now provide for the acquisition of the licenses necessary to make money transfers to the United States.
The objective of this new Libra currency would therefore seem to be to overcome the obstacles hitherto posed by monetary systems, both those in electronic money used in e-commerce and those in cryptocurrency.
In fact, this system, as described, would seem to be able to overcome, on the one hand, the limits deriving from exchanges with countries that use different currencies – which therefore require a currency exchange – and, on the other hand, fluctuations in the value of the currency and the resulting speculations, typical of cryptocurrencies.
Moreover, such a system would also absorb that potential of customers without a bank account, but equipped with a smartphone.
Despite the possible advantages and the potential development that this new currency offers, there are still many concerns, above all regarding the management of Privacy and relations with the existing banking system.