The Libra Effect

The mounting pressure that Libra has put on Central Banks across the globe has become increasingly evident.

Governments and Central Banks in the US and Europe scrambled to pressure Facebook to desist from launching Libra shortly after it was first announced last year. However, it seems that the direction of pressure has since reversed with Central Banks realising that they need to quickly adapt to the rise of cryptocurrencies and adopt Central Bank Digital Currencies (CBDCs) using distributed ledger or blockchain technology if they are to remain relevant and remain ahead of private tech giants issuing their own stable coins (cryptocurrencies backed by fiat currencies).

China and Russia have long since announced their plans to issue CBDCs. Sweden recently announced its plans to pilot an e-Krona CBDC. The Bahamas concluded their CBDC pilot last year. A host of other Central Banks in developed and developing nations (including the US Federal Reserve) have also publicly supported such considerations and initiatives.

The announcement of Libra rightly raised concerns when it was first announced given the credibility deficit suffered by Facebook following its well publicised data privacy breaches, but it has also been acknowledged that the launch of Libra will heighten the awareness and adoption of cryptocurrencies and smoothen international payment rails, helping the unbanked with international money remittances and enhancing the efficiency and cost-effectiveness of money remittances.

This will remain a fascinating area for everyone involved in finance to monitor the development of closely in the coming months. An interesting and insightful report recently published jointly by IBM and by OMFIF on CBDCs can be found here.