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Can Libra Alleviate Poverty in the Developing World?
By admin July 2, 2019

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In late June, Facebook unveiled its plans for a new blockchain-based currency, Libra. Expected to launch in 2020, Facebook claims that its new digital currency has the unique potential to advance financial inclusion and create economic opportunity for billions of people around the world.

 

So what sets Libra apart from existing cryptocurrencies and how can these features be leveraged to promote international economic development? In other words, can Libra alleviate poverty in the developing world and, if so, how? Here are 6 possible ways:

 

  1. In its most recent report on global banking services, the World Bank identified financial inclusion as a key driver of economic development. By its estimate, there are nearly 1.7 billion people worldwide who lack access to a bank account. However, roughly two-thirds of those same people have smartphones. A global digital currency can therefore serve to integrate them into the global economy.

 

  1. Beside the digitization of currency in general, the underlying blockchain technology can further promote financial inclusion by solving the problem of user identification. Many people around the world cannot reliably prove their identity, making it impossible for them to access financial services. Blockchain maintains a record of transactions that could be used to verify a person’s identity, gain insight into his or her financial history, and thereby enable financial institutions to make informed lending decisions.

 

  1. If Facebook’s 2.4 billion users adopt Libra, the marginal cost of using the service will be so low it will significantly reduce the costs of financial transactions, which are disproportionately faced by poorer communities — by way of example, remittances to low- and middle-income countries reached a record high last year of $529 billion, roughly 11 percent of which was paid in remittance fees. A global digital currency would allow poorer communities to send and receive money globally at little to no cost.

 

  1. Existing cryptocurrencies like bitcoin have no intrinsic value and are prone to speculative bubbles and wild fluctuations. Libra, on the other hand, will be directly backed by a reserve of traditional assets, making it far less susceptible to extreme price fluctuations. A stable, low-volatility currency could provide financial stability to people living under unstable conditions, such as war and natural disaster. And since it will be backed by a collection of international currencies and assets, Libra won’t be tied to the fortunes and policies of any one country. It could also lower the risk of high inflation in countries facing economic instability. In his book “The Denationalisation of Money,” Nobel Prize-winning economist Friedrich Hayek argued that the establishment of global competitively issued currencies would eliminate the risk of inflation as people would all eventually adopt the most stable currency.

 

  1. Libra will operate on an open platform that allows for third party innovations, which Facebook expects will encourage multiple financial service models to be built on top of it. This introduces the possibility of innovative financial services that are optimized for the benefit of poorer communities in the developing world. So, can Libra alleviate poverty? If it cannot do so on its own, it can be leveraged in ways that do.

 

  1. Finally, with increased efficiency, transparency, and accountability, a stable global currency built on blockchain technology has the power to transform how international aid is allocated and delivered around the world. Not only would millions of dollars be saved every year in bank transfer fees, but by helping track how every penny is spent, blockchain’s transparent record of transactions can eliminate opportunities for corruption and help aid agencies evaluate and improve their decisions.

 

To ensure that it is viewed as a trusted and transparent service, Libra will be governed by the Libra Association, a nonprofit group made up of over 20 high-profile companies including Mastercard, eBay, Uber, and PayPal. Critically, several major NGOs, such as Mercy Corps, have also announced their membership, lending credibility to Libra’s promise of financial inclusion and economic opportunity.

 

So, can Libra alleviate poverty in the developing world? Will the promise of economic prosperity be realized by the world’s most vulnerable communities? Only time will tell, but until then, there is definitely much cause for optimism.

 

For more information:

The Libra White Paper

The Libra Association

Facebook Wants to Create a Global Currency

Libra: Creating Financial Opportunity for All

Blockchain for Zero Hunger: Building Blocks

Facebook Unveils Libra Cryptocurrency, Sets Launch for 2020


Thanks for sharing !


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