Facebook is preparing to roll out Libra: its new mainstream cryptocurrency. Critics are already fearful of the results that the digital asset may have on consumers’ spending habits. According to the Federal Reserve, this year, consumer debt in America reached new heights extending to $4 trillion. The convenience and efficiency of payment with Libra may further push the limit.
Libra was designed by Facebook and will be operated with a group of partners, including payments providers, credit card companies and consumer companies. The launch is set for the first half of 2020. In Libra’s introduction, or white paper, the company says Libra comes in response to the lack of affordable quality financial services accessible for much of the population around the world. “Those who remain ‘unbanked’ point to not having sufficient funds, high and unpredictable fees, banks being too far away, and lacking the necessary documentation.” Libra’s goal is to be a simple global currency “built on a secure, scalable, and reliable blockchain, and “backed by a reserve of assets designed to give it intrinsic value”. It is not expected to have wide price fluctuations nor to be used as an investment like other cryptocurrencies.
Facebook is expected to continue its leadership role through 2019, but says Libra will eventually be governed by the independent nonprofit Libra Association. Facebook also created Calibra, a regulated subsidiary, to safeguard separation between social and financial data.
As reported by CNBC, Facebook says that Libra won’t be connected to user’s data for targeted advertisements. The company is, however, planning to integrate Libra payments into its own products used by billions of people, which has experts anxious that it will lead to other concerns. Experts worry it can become a peril for consumers who already have trouble keeping a lid on their wallets. “For a number of users, that ease of access for a tool that can be used for purchases and retail consumer activity could be dangerous, especially for those who already have a difficult time keeping control of their budget,” said Bruce McClary, Vice President of communications for the National Foundation for Credit Counseling.
Over a third of Americans already report that their spending is influenced by experiences on social media, as per Charles Schwab’s 2019 Modern Wealth Survey. The survey, done in February, studied how 1000 Americans manage their money. Social media was ranked as the top “bad” influence for money management by those who participated in the study.
Libra could make overspending easy because, unlike Bitcoin and other cryptocurrencies, it will be easily accessible for everyday transactions including paying bills or grocery shopping, explains Tyrone Ross Jr., an investment advisor specializing in cryptocurrency. “Knowing how humans are, if it is easy to do something, they’re going to have at it,” he said.
The more digitized money becomes the more easily and more haphazardly it will be spent, says Priya Malani, a founding partner at Stash Wealth in New York. She says the convenience will spur “an increase in spending on mindless purchases”.
David Marcus, the head of Facebook’s Calibra division, hinted that Libra may further expand in the future to offer other financial services, including loans. Lending could also become problematic if consumers borrow to uphold an unsustainable lifestyle, said Malani. “If you aren’t careful, ‘just this one purchase’ can quickly become years of paying back the money you borrowed at damaging, high interest rates,” she said.
