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Facebook’s Libra Will Be Transformational – Specifically for the ‘Unbankables’

By Tal Oron, Interim Executive Director, GoodDollar

Facebook’s recently announced Libra cryptocurrency has the potential to be transformational for almost 2 billion people – specifically, the so-called ‘unbankables’: those adults who do not have access to official financial services.

Of the 5.7 billion adults on the planet today, it is estimated, according to the latest World Bank statistics, that some 30 per cent (1.7 billion) do not have access to a bank account. Unsurprisingly, a majority of

Tal Oron, Interim Executive Director, GoodDollar

unbankables reside in developing countries, where for centuries business has been done using cash in hand. The bureaucratic process to open a bank account, including producing certain documents, is unappealing – or impossible – to many in poorer communities.

The number of unbankables has declined, encouragingly, from 2 billion in 2015 – a Global Findex estimate – thanks to the popularity of mobile money in the last dozen years. M-Pesa, launched in Kenya in 2007, is the biggest success story. It serves to highlight how technology can provide powerful, agile solutions that leapfrog legacy systems.

Libra and cryptocurrencies more generally have the potential to go one step further than mobile money and bank vast numbers of people with minimal friction thanks to blockchain technology.

At the beating heart of the Libra white paper, the authors describe the privatisation of money making, which hitherto has largely been a process monopolised by governments. Although there have been a number of alternative currencies launched (including crypto and others), ultimately they have fallen short as mediums of exchange. 

Libra and cryptocurrencies more generally have the potential to go one step further than mobile money and bank vast numbers of people with minimal friction thanks to blockchain technology.

If Libra is indeed a better means of exchange, it would challenge the monopoly of the governments. One thing that governments could do is to fight Libra with regulations and taxes but, as history indicates, Facebook is likely to prevail in this war.

At GoodDollar – a not-for-profit project whose core mission is to reduce global wealth inequality through a new payment network, using blockchain and universal basic income (UBI) principles – we believe Libra will greatly accelerate the adoption of cryptocurrencies in general and will contribute towards a more open financial ecosystem. 

It could also spur on fiscal stimulus programmes on a global scale. In simple terms, the difference between government-backed fiat money and crypto is that the latter is decentralised and, thanks to the blockchain distributed ledger technology, effectively takes out intermediaries, thereby making a transaction both more incorruptible and transparent, as well as cheaper. 

Facebook’s recent announcement about Libra’s 2020 release is truly exciting because it is likely to create an incredible – and instantaneous – impact for a colossal amount of people on the titanic social media platform, and beyond. 

libraSince the launch of bitcoin, in January 2009, cryptoassets have offered an alternative financial route as opposed to the traditional way, and Libra’s capabilities will help educate so many new people on what is possible. It will effectively open financial opportunities for the 2.4 billion Facebook users – almost a third of the planet.

Not only is the presentation of a unique, reliable financial infrastructure likely to promote economic activity, but the openness and transactability may also introduce consumers in unbanked regions to already existing solutions for microfinancing or local development loans. 

By collecting data on the pseudo-transparent transaction history on Libra and related protocols, researchers will be able to gain reliable insights into fiscal development in underbanked regions, enabling them to target fiscal stimulus programmes directly within regions with slow or negligent economic development. 

Similarly, as Facebook’s Libra seeks to open up the banking system and improve inclusion, GoodDollar is a cryptocurrency that has been designed to address global wealth inequality. GoodDollar doesn’t want world domination; it begins from a humble place of the fortunate, realising their power and their responsibilities to wider humanity. 

GoodDollar has a built-in direct giving mechanism to empower all or targeted users of the currency. The value it creates goes to the users of the currency, rather than to the rich enterprises.

By collecting data on the pseudo-transparent transaction history on Libra and related protocols, researchers will be able to gain reliable insights into fiscal development in underbanked regions

For GoodDollar, Facebook is an enabler for greater, better and fairer consumer choices in our financial infrastructure. Facebook is maybe the most powerful institution to make governments, regulators and institutions alike have difficult, but necessary, conversations around cryptoasset regulation and mainstream use. 

And given Facebook’s massive branding power and global success, adoption might not take long. Within three days after the announcement even my Mum was talking about Libra – already it is as though it has been a household name for decades and embedded into our culture.

Nir Yaacobi, GoodDollar’s Economics Lead, predicts that Libra could shape the future of money. “If and when people will start using Libra on a large scale,” he writes in a Medium post, “it is likely to increase the quantity of money in the global economy and thus could potentially cause inflation. 

“In order to fight this inflation, central banks would have to raise the interest rate on their own currencies. Or sell bonds to absorb their excess money – correlated to the amount of bond Libra Association would buy to its reserve. That would shrink their money market share and the gains involved with it and with a  higher interest rate to pay for their bonds could put pressure on their budget.”

Nir goes further, and continues: “The reason people and firms hold money is to meet cash-flow needs and uncertainty. If we could have all of our proceeds and spending at the same time, once a month with no uncertainty, we would hold all our surplus in other assets like bank deposits or securities. Or if exchanging from yielding assets to money and back came without a cost (including no time spent), then people might not hold money at all.

“Much like how the Libra blockchain has in effect made transferring money almost costless, I predict that sooner rather than later we will make the purchase and realisation of security and deposit frictionless. Then we might need money only for a brief moment. We could then hold our surplus within securities.”

Nir Yaacobi, Economic Lead, GoodDollar

Nir draws a hypothetical scenario to illustrate his logic. “When Adam wishes to transfer money to Eve, the app linked to Adam’s account will briefly sell the security for Libra, transfer the Libra to Eve and then buy a chosen security to Eve’s account. Money in this setting is a temporary entity and negligible.”

He adds: “In the near future, Libra may change the game of money entirely. And in the long run, we might not need to hold money at all. The income of the Libra association will shrink to its operating cost due to the small number of Libra coins, with no monopolistic rent. We as users will gain what they may lose.”

In the next few years, when suppliers come to accept any cryptocurrency, due to Facebook’s integration effort, what currency, or token, people will prefer to pay with is going to be their decision. With all that choice, will they opt to use Libra, or will they prefer to use GoodDollar, a digital currency with built-in UBI?

Thanks to the advancement and confluence of a number of technologies, such as cryptoassets and blockchain, hope is building that UBI principles can be adopted – by GoodDollar and other projects – to help the poorest people in the world achieve more financial freedom. 

Projects in the OpenUBI community are working hard and collaborating to deliver solutions around digital identity – ensuring a user on UBI-based systems such as GoodDollar is verifiable and unique – and governance structures.

Momentum is building, and the announcement of Libra is certainly a fillip to the GoodDollar project’s progress. Our team believes wealth inequality is the crucial economic challenge of our time. It’s no coincidence that the number-one aim (out of 17) of the United Nations’ Sustainable Development Goals is “end poverty in all its forms everywhere”. Furthermore, goal 10 is “reduce inequality within and among countries”. Those lofty targets suddenly look more reachable, thanks to Libra.

GoodDollar: Change Wealth Inequality – For Good 

Do you have the skills to help the GoodDollar project? We need builders, scientists and experts in identity, privacy, and financial governance, as well as philanthropists and ambassadors. Contact us at [email protected], via our social media channels (Twitter, Telegram, or Facebook), join the OpenUBI movement, or visit our GitHub page. Our YouTube channel is worth checking out, too.

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