Libra is ready for the digital currency ‘space race’: Dante Disparte

The first Libra white paper published in June 2019 had the temerity to threaten the monetary authority of central banks and governments. The empire retaliated.

That’s why an updated April 2020 white paper took a belt-and-suspender approach to regulatory compliance, said Dante Disparte, head of policy and communications at the Libra Association. The new technical document is filled with buttoned hires and a pending payment authorization through the Federal Financial Market Supervisory Authority (FINMA).

The weakening of its global stablecoin by a series of fiat-backed stablecoins has prompted some commentators to say that the project has lost its soul. Meanwhile, Libra has been written off by crypto purists (who didn’t like it anyway) and there is at least one US lawmaker calling the Libra overhaul insufficient.

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Whatever you think of the “unfortunate” ???? positioning of Libra’s first white paper, as Disparte said, the effort undoubtedly sparked a “space race” ,? he said, especially with regard to central bank digital currencies (CBDCs).

And a world where 70% of central banks explore CBDCs presents an opportunity, he said.

â ???? When they [central banks] take the leap beyond wholesale, that’s where most of the work of CBDCs takes place, and start thinking about retail applications, then we’ll be in a better world for the fact that networks like Libra exist, ”???? Disparte told CoinDesk in a recent interview.

According to the updated white paper, Libra hopes that “these CBDCs could be directly integrated into the Libra network, thereby eliminating the need for Libra networks to manage associated reserves, thereby reducing credit and custody risk.”

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Read more: Libra cuts global monetary ambitions in concession to regulators

Later, it would be possible to offer the central bank of Ghana, for example, a way to “create a cross-chain trading window between you and the currency you are issuing, and user-level applications that are interoperable, â ???? said Disparte.

In addition to shaking up central banks, Libra has spawned direct competitors such as the Celo Alliance backed by Andreessen Horowitz and the Google and Gates-backed Mojaloop Foundation, which aims to interconnect private forms of mobile money such as M- Pesa. in sub-Saharan Africa and India.

But the elephant in the room is China, Disparte said, where the digital payment efforts of WeChat Pay, Alipay and the People’s Bank of China (PBoC) serve hundreds of millions of users.

In this particular race, Libra appears to be reaching out to the United States and offering a way to put a CBDC in the hands of consumers.

â ???? You can be NASA, [Libra is] telling the Federal Reserve, and we’ll be the Space-X of the money, that’s how author and digital currency expert Dave Birch put it in a recent article.

“I think there would be nothing better for the world and for poverty reduction if, in fact, we started to start a little space race on compliance to address the 1.7 billion people who are unbanked and underbanked ”,? ??? Disparate says. “So from my point of view, there is no monopoly on this work. Let others enter into this process and let the race begin.

Imperturbable

Cynics scoffed at Libra’s stated mission to help the unbanked population of the planet.

But uniform compliance regimes that can inadvertently exclude people from the financial system – and regulatory dead zones where users do not have verifiable identities to pass Know Your Customer (KYC) checks – ???? This is where Libra is fighting their fight now.

In such cases, every centimeter gained contributes to “widening the perimeter of the formal economy”,? said Matthew Davie, Kiva chief strategy officer. (Davie is a member of the board of directors of Libra and Kiva is one of the founding partners of the Libra association.)

However, the first phase of Libra’s deployment, which begins in the fourth quarter of this year, Disparate said, will require authorization to join the network instead of it being open and relying solely on surveillance, as had been promised l ‘last year. ??? s plans. In other words, phase 1 will not move the needle when reaching the non-bench.

The first phase will be closely linked to the licensing of crypto companies in regulated jurisdictions such as the United States, Europe and Singapore, and will also apply the recommendations of the Financial Action Task Force (FATF) for providers. regulated virtual asset services (VASP) involving things like the “rule of travel”.

But does Libra know that financial inclusion can only really start to be driven by Phase 2, when the network will start adding so-called “unhosted wallets”? not connected to regulated VASPs or in countries where this option is not available.

Libra couldn’t say exactly when the second phase should start, but allowing non-hosted wallets to create accounts directly on the network is “something the project feels very strongly from a financial inclusion standpoint” ,? ??? said Mandeep Walia, chief compliance officer of Novi, the Facebook affiliate formerly known as Calibra.

Read more: Facebook’s Calibra Becomes Novi, Details Wallet Association With WhatsApp

“Obviously there is some risk associated with this if there is no KYC and no real compliance is happening directly on that particular account,”? Walia said. “There are other controls we’ve talked about, such as creating some sort of protocol-level automated balance / transaction limit so that the damage from any potential bad activity is relatively mitigated.

The $ 1,000 threshold on FATF travel rule transactions could be a starting point for discussions about setting a cap for limits, and Libra has some ideas in mind, Disparte said, but at the end of the day, the Association is not the rule maker, he added.

In an interview with CoinDesk, FATF Senior Policy Analyst Tom Neylan said watchdog AML was open to discussing customer due diligence with Libra, which would include things like accounts limited, where users can make transactions of a certain amount. business in a certain period.

“If you think about the average outflow of remittances from many countries around the world, that’s a small amount, even on an annualized basis,”? said Disparte.

Regarding connectivity between Libra network participants and users of Facebook services like WhatsApp with its end-to-end encryption, Walia said Novi users will need to perform a standalone KYC verification.

“We have conversations, data field by data field, with these teams to make sure that we are clear on which position to take for each of the requirements on both sides,”? he said.

In addition, Libra will operate financial intelligence units using the capabilities of companies such as Chainalysis and Elliptic and a range of tools examining IP addresses, geolocation, and more.

Cost of identity

Allowing wallets not hosted on the network is an important ramp for financially excluded people, Kiva’s Davie said, but it’s only part of the journey.

Expanding the scope of KYC controls is the most exciting innovation Libra can offer, he said. It’s extremely difficult, especially when people have limited documentation, and it’s expensive for what amounts to a low value account.

But systems like Libra can dramatically reduce the cost of compliance and enable full KYC inclusion for people who do not have a national identity or were unable to pass a KYC check, Davie said.

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“We can actually lower the barrier to bring compliance where it isn’t”,? he said. “Because most of the actors outside the perimeter are very good actors. Kiva has been deploying millions of dollars in the unbanked sector for 15 years. Our default rate is lower than that of US credit cards, and most of these people have never passed a KYC check.

In places where people may not have paper ID, they may have access to Facebook. Could this digital credential be combined with something like a transaction limit of $ 20 per day to get these people into the financial system?

“I would love to see regulators think of it this way” ,? Davie said. “Setting an appropriate transaction limit is a sovereign decision and a decision of the regulator. But look, 70% of the world’s adult population earns less than $ 10 a day. So you’re not talking about big sums of money: $ 10 or $ 15 or $ 100 as an account limit and you include a whole bunch of people on that plan.

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