The Fraud Examiner

Overview of Facebook’s Libra Cryptocurrency: The Initial Response and Fraud Implications
 

Mason Wilder, CFE
Research Specialist, Association of Certified Fraud Examiners                                 



In June 2019, Facebook announced the development of its own cryptocurrency built on a proprietary blockchain in a white paper that outlined the cryptocurrency and its underlying technology.

A few key details:

  • The coin will be called Libra.
  • Libra will be a “stablecoin,” which is a type of cryptocurrency backed by assets to limit volatility in price. The assets backing Libra will be bank deposits and short-term government securities held in reserve.
  • Users will be able to send and receive it or buy products and services with “nearly zero” fees.
  • Facebook created its own wallet, Calibra, for the cryptocurrency, but users will be able to use third-party digital wallets too. It is unclear just how much Facebook user profiles, and therefore users’ identities, will be tied to the wallets.
  • Governance of Libra will be in the hands of a not-for-profit organization in Switzerland called The Libra Association and Facebook will control one vote alongside other founders — which include Visa, Mastercard, PayPal, Uber and eBay.

Facebook’s purported goal of creating the cryptocurrency is to increase the availability of financial services for unbanked and underbanked consumers, while removing cost barriers to transmitting money internationally. According to the Libra white paper, “global, open, instant, and low-cost movement of money will create immense economic opportunity and more commerce across the world.”

The response

The social media giant’s ostensibly lofty and noble ambitions were not exactly welcomed with open arms or taken at face value. On the heels of the Libra announcement, U.S. Treasury Secretary Steven Mnuchin held a press conference describing Libra as a national security risk  and critiqued cryptocurrencies in general for facilitating crimes. During hearings on Facebook’s proposed cryptocurrency, Federal Reserve Chairman Jerome Powell expressed concerns to Congress about Libra, specifying money laundering, consumer protection, privacy and financial stability. Other U.S. politicians and government officials from Germany, France and Russia either criticized the proposal, advocated regulation of the currency, or in the case of Russia, stated that the currency wouldn’t be legalized because of the threat it posed to Russia’s financial system.


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