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How Facebook’s New Digital Currency, Libra will Work

Facebook is coming together with 27 organizations around the world to start the non-profit Libra Association and create a new currency called Libra powered by blockchain technology, Chimp Corps report.

Facebook founder Mark Zuckerberg said Libra’s mission is to create a “simple global financial infrastructure that empowers billions of people around the world. It’s powered by blockchain technology and the plan is to launch it in 2020.”

Libra is designed to be a stable digital cryptocurrency that will be fully backed by a reserve of real assets — the Libra Reserve — and supported by a competitive network of exchanges buying and selling Libra.

Facebook says that means anyone with Libra has a high degree of assurance they can convert their digital currency into local fiat currency based on an exchange rate, just like exchanging one currency for another when traveling.

“This approach is similar to how other currencies were introduced in the past: to help instill trust in a new currency and gain widespread adoption during its infancy, it was guaranteed that a country’s notes could be traded in for real assets, such as gold,” said Facebook in a statement on Tuesday.

“Instead of backing Libra with gold, though, it will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.”

Uganda’s situation

Cryptocurrency is a new phenomenon in Uganda, with many looking at it with suspicion.

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President Museveni in 2018 encouraged Bank of Uganda to approach the new trend of Cryptocurrencies with a much more open mind.

Governor Tumusiime Mutebile has since expressed his skepticism over cryptocurrencies, saying they undermine the role of Central Banks and remained too unreliable as a medium of exchange.

“They don’t have the privileges of the legal tender and are not backed by the Central Bank, which ensures that the supply of currency is always adequate to meet the demand,” he said.

Mutebile added: “There are no external mechanisms for backing cryptocurrencies to ensure that they have a stable value. Hence they are subject to extreme price volatility which renders them ineffective as a unit of account.”

Mutebile went on to cite a recent study, which found that he average volatility of the top 10 cryptocurrencies by market capitalization was 25 times that of the US equities market in 2017.

He further noted that cryptocurrencies such as Bitcoin allow cross border payments, which are made anonymously and can facilitate illicit transactions such as money laundering and financing of crime.

“They also offer an avenue for speculation but unlike other assets which attract speculators like gold or equities, cryptocurrencies have no intrinsic value. Their current value depends entirely on the subjective beliefs of cryptocurrency traders about what their future value will be.”

ICT Minister Frank Tumwebaze recently constituted a team of experts to study the fourth industrial revolution technologies and advise on their implementation to facilitate Uganda’s economic growth.

Mobile payments

Zuckerberg today said being able to use mobile money can have an important positive impact on people’s lives because you don’t have to always carry cash, which can be insecure, or pay extra fees for transfers.

“This is especially important for people who don’t have access to traditional banks or financial services. Right now, there are around a billion people who don’t have a bank account but do have a mobile phone,” he said.

“We aspire to make it easy for everyone to send and receive money just like you use our apps to instantly share messages and photos. To enable this, Facebook is also launching an independent subsidiary called Calibra that will build services that let you send, spend and save Libra — starting with a digital wallet that will be available in WhatsApp and Messenger and as a standalone app next year,” he added.

Calibra will be regulated like other payment service providers. Any information users share with Calibra will be kept separate from information they share on Facebook.

From the beginning, Calibra will let users send Libra to almost anyone with a smartphone at low to no cost.

“Over time, we hope to offer more services for people and businesses — like paying bills with the push of a button, buying coffee with the scan of a code, or riding local public transit without needing to carry cash or a metro pass,” said Zuckerberg.

In addition to our efforts, many other companies will build their own services using Libra — from payment companies like Mastercard, PayPal, PayU, Stripe and Visa, to popular services like Booking, eBay, Farfetch, Lyft, Spotify and Uber, to non-profits doing important work around financial inclusion like Kiva, Mercy Corps and Women’s World Banking, to companies in the crypto space like Anchorage, Coinbase, Xapo, and Bison Trails.

Zuckerberg said a number of leading Venture firms are also joining to help drive innovation on the Libra network.

“We’re hoping to have over 100 cofounding members of the Libra Association by the time the network launches next year. All of this is built on blockchain technology. It’s decentralized — meaning it is run by many different organizations instead of just one, making the system fairer overall,” he emphasised.

“It’s available to anyone with an internet connection and has low fees and costs. And it’s secured by cryptography which helps keep your money safe.”

He also said Calibra will have a dedicated team of experts in risk management focused on preventing people from using Calibra for fraudulent purposes.

“We’ll provide fraud protection so if you lose your Libra coins, we’ll offer refunds. We also believe it’s important for people to have choices, so you’ll have the option to use many other third-party wallets on the Libra network,” said Zuckerberg.

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