Will Libra Succeed? Results From A Global Survey Experiment
By Andreas Park on ALTCOIN MAGAZINE
Three months ago, Facebook announced the formation of the Libra Association, which would build a new financial infrastructure parallel to the current financial system. A key component is its internal money, the Libra Coin, backed by a basket of world currencies such as the U.S. dollar, Euro, and Sterling. There has been much controversy around this initiative. France and Germany vowed to block it within Europe altogether, and policymakers in many advanced countries worry that the network will become a cesspool of criminal activity. Also, how dare Facebook come up with its own global currency! An ad-revenue driven firm like Facebook would love to have people’s payment data. If they knew a person’s purchases in June, they could probably predict their Christmas shopping list down to the last box of chocolate.
What we find disappointing about the current debate is the extremely first-world centric, supply-side discussion. Less than 20% of the 2.4 billion Facebook users are in Europe or the U.S., and there is generally no debate on what users think and whether they would benefit. Let’s contemplate the merits of Libra for a second.
Even though our payments system works, it is clunky, slow, and expensive and not on par with other 21st century technologies. Small businesses in Canada, people crossing borders, or those supporting loved ones in Asia, Africa, or South America know how expensive and challenging money transfers are. Try moving funds from your chequing account to your credit card when you have a balance. It will take 2–3 days, and you keep paying interest in the meantime! Overall, the direct and indirect costs of payments are a multi-billion dollar cost for the Canadian economy.
Most of the 7.7 billion people in the world, through no fault of their own, must rely on money that is often worth less than the paper that it is printed on. Most international trade contracts are in the world’s hegemon currency, the U.S. dollar. That’s great if you have dollars and risky if you pay your bills in any other currency.
Libra also aims to be much more than a global currency — it wants to be a financial infrastructure in the sense that it can perform code executions and host “smart contracts” (a little bit like the Ethereum network, except that it would be permissioned and that it would rely on something resembling real money, not a cryptocurrency).
Back to money, however. Libra is a private sector initiative — it cannot force people to use its money. Before regulators and politicians in Washington, Berlin, and Paris move to ban Libra, maybe it’s worth listening to the possible users first? Are people willing to use Libra? Are merchants willing to accept it as payment?
To find out whether people are open to using non-traditional, non-government-issued currencies, we, RIWI and the FinHub (the University of Toronto’s Rotman School of Management’s Financial Innovation Lab), heard from more than 10,000 people representative of the Web-using population. Most of Facebook’s estimated 2 billion users live in developing economies, and users in emerging economies may be the primary beneficiaries of this innovation. For this reason, we ran our online survey in three countries: India, Nigeria, and the United States.
We used RIWI’s survey technology that engages respondents randomly from the Web-using population. The advantage of this approach is that it taps into the full range of those who might use digital currencies, including those who might otherwise not be included in typical data collection. It includes those without bank accounts (41 percent of respondents), those that had never answered a survey (50 percent), and those under age 35 (74 percent) that are likely to drive future payments trends. Libra’s success will hinge upon its adoption by young people in emerging markets, who represent a large share of the global online population.
The data clearly shows that people are willing to use a global currency like Libra, in particular in the developing world, but less so in the U.S.:
55 percent of respondents in Nigeria but only 28 percent in the U.S. are open to using non-traditional money. Businesses in Nigeria are even more willing to accept non-government money (67 percent), but not in the U.S. (30 percent). However, the data also shows that people would feel much better if the money would not come from Facebook. We randomly asked half the respondents about Facebook-issued money and the other half about cash issued by a generic technology company. The respondents were 15–20 percent more willing to use non-government money when we didn’t allude to Facebook. The most commonly cited reservation is that people worry about their privacy and that they don’t like Facebook/tech companies. Maybe that’s why PayPal, Visa, and Mastercard have recently decided to leave the Libra Association?
We also have some bad news for Bitcoin enthusiasts: 62% of respondents said that they would not use Bitcoin-like money. So much for Bitcoin as the new world currency…
Billions of people would benefit if they had access to stable money, but national governments will not get together and develop a world currency — why would they? Although banks are working on modernizing payments, an excellent customer experience may not be their top priority. Tech firms that work to overcome frictions to improve the customer experiences may, by accident, do some real good. Maybe we should let them try. However, the Libra Association would be well-advised to put itself at several arms’ length distance from Facebook.
The full whitepaper is available here.
Last but not least: Let me be clear that I don’t want to trivialize the legitimate issues and concerns that Libra raises at all. It clearly must not become a cesspool for illegal activities, and if it does become widely adopted, there needs to be some form of oversight. The history of finance has taught us that things go wrong all the time; the last thing we need in our volatile world is that people hold serious money on the Libra platform and then for some reason the platform fails, gets hacked or becomes otherwise unusable. Imagine a world where 2 billion people lose a serious portion of their life savings because of a cyberattack or because of a screw-up by the issuers of Libra — there’d be civil unrest.
