The scare stories about how Libra will destroy banking are overdone. The project will expand the market bringing in more business for everyone, writes Brian Caplen.

Facebook’s plans to launch its own cryptocurrency using blockchain has led to the usual ‘traditional banks are dead’ commentaries. However, if the Libra project is successful it will be good for banks. How so? One aim of the project is to allow the unbanked to send and receive payments at very low cost. 

These are people who by definition are not using the banks. But if Facebook can get them signed up, their next step is likely to be opening a bank account to hold funds they have received, or using in their Calibra digital wallets. They are unlikely to want to hold much in the Libra currency.

Their next financial steps are likely to be savings and loan products, thus bringing in more new banking business. These are products that Facebook will not want to be involved in and will not be able to deliver without a banking licence. A savvy bank should start now in designing its Calibra-compatible accounts. 

Neither will the banks be crying about the loss of the small payments remittance business that the Facebook system will attract, as they largely gave up on competing in that space a while back. The competitive target here is more likely to be fintech remittance players such as TransferWise. 

The real challenge for the Libra project is whether customers have faith in a currency not backed by a central bank. Libra will be backed by assets but its value will be determined by a currency basket. The sting will be if users find that the market has moved against them and the Libra in their Calibra wallets has lost value. For this reason they will want to change their money back and forth into their local currency or dollars and keep it in a bank account.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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