Since Facebook launched Libra, a not-for-profit initiative to create a digital currency and global payments system, there has been much hand-wringing over the potential risks posed by digital disruption in the financial sector. But not nearly enough has been said about the dangers associated with the status quo.
WASHINGTON, DC – By announcing the launch of the Libra Association on June 18, 2019, Facebook and other members of the association started a vigorous debate about the role of digital technology in payments, currencies – including those issued by central banks, more than 80% of which are exploring the concept of central bank digital currencies (CDBC) – and other areas of the global financial and monetary system. The conversation has since moved from the abstract to the concrete. Businesses, policymakers, and other stakeholders are now weighing the opportunities and risks associated with open and competitive innovation in a domain bereft of new thinking for more than 50 years.
As a result of this sclerosis, existing payment systems, particularly for international transfers, run on dated, expensive, and analog rails with low levels of interoperability. And yet, despite the inefficiency and inherent risks of the status quo, dominant players until recently have had no incentive to change it. The world has continued to be plagued by high rates of financial exclusion, because among the only ways that people can access the financial system is through brick-and-mortar channels and plastic cards with expiry dates (assuming they can qualify).
Digital-native payment services and regulation-compliant payment networks like the one the Libra Association is building promise to change that by creating a new digital commons. By spurring sorely needed competition, these efforts will drive both public- and private-sector innovation.
WASHINGTON, DC – By announcing the launch of the Libra Association on June 18, 2019, Facebook and other members of the association started a vigorous debate about the role of digital technology in payments, currencies – including those issued by central banks, more than 80% of which are exploring the concept of central bank digital currencies (CDBC) – and other areas of the global financial and monetary system. The conversation has since moved from the abstract to the concrete. Businesses, policymakers, and other stakeholders are now weighing the opportunities and risks associated with open and competitive innovation in a domain bereft of new thinking for more than 50 years.
As a result of this sclerosis, existing payment systems, particularly for international transfers, run on dated, expensive, and analog rails with low levels of interoperability. And yet, despite the inefficiency and inherent risks of the status quo, dominant players until recently have had no incentive to change it. The world has continued to be plagued by high rates of financial exclusion, because among the only ways that people can access the financial system is through brick-and-mortar channels and plastic cards with expiry dates (assuming they can qualify).
Digital-native payment services and regulation-compliant payment networks like the one the Libra Association is building promise to change that by creating a new digital commons. By spurring sorely needed competition, these efforts will drive both public- and private-sector innovation.