Australian investors in the Libra global currency have called on the Federal Government to hold urgent “currency” talks following news that Switzerland has licensed the world’s first two cryptocurrency banks – and China is set to launch its digital currency.
“If Libra introduced online tokens, there’s no way Australians wouldn’t use them. It’s the future of money,” said Heath Behncke of Holon Global Investments.
Heath and brother Luke are Libra Association investors and make up the growing number of people keen to see the association provide a node, to allow the use of the currency in Australia.
Though proposed by Facebook, the worldwide Libra Association is made up of 28 equal partners, including global giants Visa, Mastercard, Paypal, eBay, Spotify and Uber. The Association claims that by next year, their partner base will number 100. Facebook alone boasts 1.7 billion users.
Ramifications for Australia
There’s a concern that while the Australian banks and the Federal Government seem focussed on the impact of the Banking Royal Commission, and new banking CDR legislation, the threat of new digital currencies is not front of mind.
“When deposits and transaction deposits start to move – we could get quite a big shift occurring,” said Heath Behnckes. “The very heart of the big banks is a transaction deposit.”
Jason Potts, an Economics Professor at RMIT and KPMG advisor, also believes the consequences for Australia banks and the Australian dollar could be severe.
“The implications for global consumer payments of new private money such as the Libra cryptocurrency could be profound. There are also significant implications for the role and status of the Australian dollar, which needs to be part of the basket of liquid assets that back the new Libra currency,” said Professor Potts.
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
RMIT was recently ranked third in the world for its study of digital currencies. Professor Potts is the Director of its RMIT Blockchain Innovation Hub, and his University has recently joined the call for a national discussion on Libra.
“Private currencies and Company scrip have always existed, but they have never been a significant part of any financial system. Blockchain technology and cryptocurrencies such as Bitcoin are fundamentally changing that.
A cryptocurrency is that it is not controlled by any central authority: the decentralized nature of the blockchain makes cryptocurrencies ‘theoretically’ immune to government control and interference.
“Libra is shaping up as likely to be the first serious private money competitor to government money. The potential scale of its payments network, with a network of billions of potential users, may even present as a competitor to global reserve currencies.”
Behckne agrees and says the ease of the Libra system will win over customers.
“The Netflix, Xero, and Uber business models are all based on the same premise and the same pattern, and they all work,” he said
“It’s a borderless, digital world. We are moving rapidly into an era of micro-transactions where you will be able to send and receive money as instantly and as cheaply as you can receive a text. Why wouldn’t Australians want to move to a digital currency?”
“Australian banks charge anywhere from 7 to 11% in fees for simple money transfers between countries, and this often takes up to 5 days,” he said.
Despite their concern about the impact of a Libra currency the Reserve Bank of Australia recently released a 5,800-word paper citing four analysts who concluded that there is “little likelihood of a material take-up of cryptocurrencies for retail payments in Australia in the foreseeable future.”
Those opinions may already be outdated. Last weekend the Governor to the Bank of England Mark Carney told banking experts a digital world currency, similar to that proposed by Libra, might be a better option than having the world’s global reserve, subject to the wild fluctuations of the US dollar.
“It is an open question whether such a new ‘synthetic hegemonic currency’ would be best provided by the public sector, perhaps through a network of central bank digital currencies,” Governor Carney said.
Libra appears to have addressed fears of cryptocurrency volatility with a plan to link its reserve with several international currencies to end the wild swings that have plagued cryptocurrencies.
“When deposits start to move, and you look at the scale of the distribution that Facebook brings and all those partners, with Spotify and Uber – you realise that we will see a substantial amount of money will go into the Libra Reserve,” said Heath Behncke.
The Libra plan is slowly but surely gaining credibility. Carney also told the world’s banking leaders that technology can disrupt protections to the dollar; and, that an increasing number of transactions occur online and use electronic payments rather than cash.
While the Bank Governor’s comments may have further agitated the US and France, who have sent protest delegations to meet with Swiss regulators over the Facebook/Libra proposal, there are signs the world’s banks are shifting.
Switzerland makes history
Switzerland, the centre of the banking world, has just announced that the Swiss Financial Market Supervisory Authority (FINMA) has issued banking and securities dealers’ licenses to two “pure-play blockchain service providers.”
The new Swiss crypto banks will be able to offer banking services for institutional and professional crypto clients under strict supervision.
And, there’s global speculation that China will release its own state-backed cryptocurrency to 1.3 billion citizens, on Singles Day – 11 November. The date is significant as its China’s busiest shopping day when billions of dollars of transactions occur. Last year Chinese shoppers spent the equivalent of AUD 42.4billion.
Forbes Magazine has reported that China will release its digital currency via its biggest banks and online ecommerce players like Alibaba and gaming giant Tencent.
Libra launch on track
And while it appears that Australia is studiously ignoring the cryptocurrency debate, the Libra Association is steaming towards a 2020 launch. It’s just announced a test of its programs calling on experts to challenge its blockchain security.
“We want to help our researchers uncover critical security issues while the Libra Blockchain is still in testnet and no real money is in circulation,” said Libra’s head developer Michael Engle.
Libra is promising to pay a reward of US $10,000 to anyone that finds fault with its Bug Bounty Program.
While the Libra Association still needs to negotiate a plethora of regulatory problems to advance its stablecoin, Australian support for the Libra currency is growing. Two high-profile law firms and the Australian National University have joined with RMIT as Libra supporters.
“Technology is allowing for disruption of this sector, and we can have a Chinese digital currency, or something else,” said Luke Behncke.
“Corporations like Visa and Mastercard – both trillion-dollar market-cap businesses – want to be involved in Libra because they see the potential for payment systems to shift,” he said.
While there may be significant differences between a government-backed digital currency and a corporations-backed venture, Behncke said it’s essential to urgently address the impacts of cryptocurrencies on our economy.
“This requires an all of ecosystem approach that includes all the experts if we are going to advance Australian opportunities in this space,” he said.
“Things are moving so fast, and it seems highly-likely that Libra will get there one way or the other. It’s just whether we are part of it. If we miss that boat, it will be our own fault,” he concluded.