NEW YORK - Facebook is throwing down a crypto-gauntlet to its critics. The social network’s poor track record on privacy makes it an unlikely creator of digital money. Yet it boasts 2.4 billion users and has enlisted some of the biggest names in tech and finance as partners. The new currency, Libra, is a bet that Facebook’s trust problems are overblown.

Boss Mark Zuckerberg sees digital payments as a logical, and potentially lucrative extension, for his company as he aims to pivot to private communications. Some 1.5 billion people around the world use the Facebook-owned WhatsApp to message friends and family. If he can make sending money as easy as texting, that could give him an entrée to what the World Bank estimates is a $530 billion market for remittances, and potentially open the door to e-commerce.

His company’s carefree handling of user data has prompted U.S. regulatory investigations and calls for Facebook’s breakup. That’s why Libra is being launched with 27 partners ranging from payments stalwarts Visa, Mastercard and PayPal to ride-hailing app Uber Technologies, music-streaming service Spotify Technology and venture capital firm Andreessen Horowitz. They will govern the currency through an association in Switzerland, where regulators take a friendlier approach to crypto than the U.S. Securities and Exchange Commission.

Running Libra on a permissioned blockchain, open only to the partners investing in the network, should help deter the hacks that have plagued cryptocurrency exchanges. And pegging its value to fiat currencies should make it more attractive for transactions purposes than bitcoin, crypto’s largest, volatile asset.

That said, linking Libra to a basket of currencies rather than just the dollar or euro adds complexity. Users will effectively pay to use Libra by giving up the interest on the bank deposits and low-risk securities held to back the coin, and Venmo and Tencent’s  WeChat already offer cheap transactions without a crypto coin. No blockchain app has yet achieved mass adoption, and the world’s cryptocurrencies are collectively worth barely half Facebook’s $540 billion market cap.

Still, mainstream outfits like JPMorgan, Fidelity and NYSE owner Intercontinental Exchange are getting into the digital space, seeing the potential for blockchain to disrupt conventional finance. Facebook’s impressive list of partners indicate Zuckerberg isn’t alone in betting his company can still move fast and break things.

On Twitter https://twitter.com/tombuerkle

 

CONTEXT NEWS

- Facebook on June 18 announced plans to launch a cryptocurrency called Libra to expand into e-commerce and global payments. The digital money will be a so-called stablecoin linked to a basket of major fiat currencies and backed by a reserve invested in bank deposits and government securities denominated in those currencies.

- The social network has enlisted 27 partners in a Geneva-based entity that will manage and govern the currency. They include credit-card payments companies Visa and MasterCard, ride-hailing app Uber Technologies, music-streaming service Spotify Technology, and venture capital firm Andreessen Horowitz.

- Facebook is creating a subsidiary called Calibra to offer digital wallets to save, send and spend Libra. The wallets will be connected to the company’s Messenger and WhatsApp messaging platforms.

- For previous columns by the author, Reuters customers can click on BUERKLE/

 

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by John Foley and Amanda Gomez) ((thomas.buerkle@thomsonreuters.com; Reuters Messaging: thomas.buerkle.thomsonreuters.com@reuters.net))