In June, Facebook announced its plans for a digital currency that could be a revolution.
During my association with Trade and Export Online, one of the areas that has needed most monitoring for updates is Unit 40 on Payments Procedures. Whilst fundamental principles remain, innovation in the financial sector has driven a significant shift in practice. For example, that from traditional settlement terms to on-line settlement and growth of cards.
Now, in the form of Libra, we have the promise of a new digital currency that will make international payment as easy as sending a text.
At one level a cynic might describe Libra as just another ‘crypto-currency’ - a digital alternative operating outside the conventional market. Whilst some recent examples can be argued to have made an impact, this has not transferred to integration within regular trade practice. So, could Libra be different?
Some of the functions commonly ascribed to money include:
- Providing a unit of account
- A secure store of value
- An accepted medium of exchange
- A standard that can be used for deferred payment
A currency will fulfil these functions often within a limited jurisdiction, for example where it has Government backing - Egyptian Pounds in Egypt, for example.
Libra is seeking to achieve a similar effect by building an impressive array of consortium partners that could provide users with a significant level of assurance.
However, the major challenge may be how readily, and on what terms, regulators can be satisfied. There are a number of potential risks associated with large-scale transfers of money and data at enhanced speed. Also, such free movement of money may not suit every Government’s agenda.
That said, some established practice amongst banks in international payments in terms of access, cost and delivery does seem out of step with the digital age. So, this and similar innovations will be interesting to monitor. Financial technology firms have already demonstrated an ability to transform traditional practice.