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Facebook Faces EU Scrutiny, France & Germany to Block Libra

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Facebook (FB - Free Report) is having a tough time in the European Union (EU) over its proposed cryptocurrency Libra. Apart from intense skepticism related to data privacy and usage of Libra as a money-laundering channel, the company has been facing antitrust scrutiny by EU regulators.

To further tighten the screws on the social media giant, EU’s two major financial powers — France and Germany — recently agreed to block Libra from operating in the regions.

EU Countries to Back Public Cryptocurrency

The uneasiness regarding Libra is brewing from the fact that the cryptocurrency has been promoted as an alternative to currencies like U.S. dollar or euro for all financial dealings.

Libra is aimed to be a stablecoin (which means it is less volatile than other cryptocurrencies) as it is backed by real assets, including a basket of bank deposits and short-term government securities.

Libra’s potential to decimate stability in the banking and financial system has prompted central banks and regulators across the globe to take action. In fact, per the Bank for International Settlements (BIS), modest adoption of Libra will make private companies (in this case Facebook and the founding members) powerful enough to control monetary policies.
 

 

Notably, France and Germany have cited risks to the financial sector's stability and “monetary sovereignty” in support of their decision to block Libra.

Per a Reuters report, both countries have extended support for ECB’s initiative to develop an alternative public cryptocurrency, which doesn’t bode well for Facebook and Libra.

Aggravating Global Scrutiny Might Delay Libra’s Launch

Moreover, the increasing number of investigations and regulatory dilemma is now expected to delay the launch of Libra, which Facebook targeted in the first half of 2020.

Per Financial Times, as cited by Reuters, Libra representatives are set to face grilling from officials of 26 central banks, including the U.S. Federal Reserve and the Bank of England, today, in Basel. Libra founders, including Facebook, are expected to attend the meeting.

Notably, Facebook has been facing significant criticism from the U.S. lawmakers regarding Libra. While the U.S. senators have termed the company’s ambitious plan as “delusional” and “dangerous”, President Donald Trump has criticized its plan to enter the cryptocurrency market. He also suggested that Facebook might have to face stringent banking regulation for Libra.

The U.S. senators have also questioned the company’s decision to headquarter Libra Association, the governing body of Libra, in Switzerland. Furthermore, the business model of the organization that includes the likes of Mastercard (MA - Free Report) , Uber and PayPal (PYPL - Free Report) has been put under scrutiny.

Notably, including Facebook, the Libra Association has 28 companies, who have invested $10 million each to become a founding member.

Intense Scrutiny to Boost Customer Confidence

Although regulations and investigations can act as hurdles, we believe intense scrutiny will improve consumer confidence in Libra. Moreover, its low-fee transaction will likely encourage consumers to hold and use the digital currency.

Further, this initiative can be a game changer, as even if a fraction of the company’s user base of 2.3 billion adopts the cryptocurrency, it will significantly boost Libra’s credibility compared with digital currencies like bitcoin. It will also boost the social-media giant’s competitive position in the payments space, which is dominated by the likes of Square (SQ - Free Report) .

Facebook is also expected to use Libra to penetrate the underbanked population in regions like South East Asia, East Africa and Latin America, thereby driving growth over the long haul.

Currently, Facebook has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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