Facebook’s (FB - Free Report) digital currency Libra may have been a source of debate among Western government officials and media, but the new venture holds promise, especially for users in emerging markets (EMs). A major reason behind this is the growing number of smart phone users in developing countries who prefer digital payment systems over traditional ones.
First, the majority of Facebook’s 2.4 billion active monthly users and 1.5 billion users of WhatsApp live in emerging market economies. Needless to say, Facebook’s target market is huge and the growing popularity of digital wallets and payment systems in developing countries could only make Libra the new favorite digital currency. Plus, Libra is designed in a manner that not only holds funds, but also exchange money.
According to the World Bank, the number of traditional financial account holders remained largely unchanged last year. But the number of mobile-only money account holders almost grew twice the size on a year-over-year basis to 21%. This is indicative of the need of a digital currency that can be used by anyone with a digital wallet.
Second, a majority of small businesses in EMs use Facebook’s WhatsApp to carry out business activities and share crucial information such as receipts and bills with clients, suppliers and customers. Facebook plans to use WhatsApp and Messenger as modes to transact Libra, which would ultimately lead to greater consumer adoption of the currency.
Facebook, a Zacks Rank #2 (Buy) company, also has the necessary technical expertise and monetary ease. This leads to the belief that Libra will be more user-friendly than the existing methods. You can see the complete list of today’s Zacks #1 Rank stocks here.
Third, Libra being a cryptocurrency offers greater security by virtue of its decentralized blockchain. Digital payment systems in emerging market economies are becoming popular targets for financial cybercrimes, which can be well-tackled by a secure currency such as Libra.
Finally, although big names such as Visa Inc. (V - Free Report) , PayPal Holdings, Inc. (PYPL - Free Report) and Mastercard Incorporated (MA - Free Report) opted out of backing Facebook’s ambitious Libra last week, there are high-profile companies such as Uber Technologies, Inc. (UBER - Free Report) , Lyft, Inc. (LYFT - Free Report) and Spotify Technology S.A. (SPOT - Free Report) among the Libra Council’s 21 members. Also, the firms that have opted out might reapply to the association should Libra be launched successfully and have a precise roadmap.
A potential competitor to Libra in developing countries could be China’s yuan-backed Central Bank Digital Currency (CBDC), which could operate through WeChat, AliPay and UnionPay etc. However, China’s cryptocurrency us yet to chalk out a proper future plan, whereas Libra has a clear blueprint. In fact, Libra’s currency would be tied to the greenback, euro and yen, which is why it is a so-called “stable coin.”
Given these positives, Facebook’s Libra is quite likely to emerge as a winner in developing countries.
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