LIBRA THROWS A LIFELINE TO THE SDGS

By David Galipeau, Founding Partner of SDGx and Director of the Yunus Center Near Future Lab, DeFi Alliance Scholar




The SDGs 2030 shelf life is only about 10 years away and at this point, the global community should be using every inclusive tool in the arsenal to sustainably finance the SDGs - from crowdfunding to impact investing to even cryptocurrencies.

Yes, cryptocurrencies.

Sure, they can be complicated and sometimes challenging but sustainable finance – specifically in last mile scenarios - needs to start looking beyond traditional financial tools and take a page from the start-up playbook to explore innovative financing approaches to move SDG financing forward.

There are many questions but there may now be an answer.

Facebook has announced its own form of cryptocurrency called Libra alongside a digital wallet named Calibra, which will allow any Facebook member to pay for everyday items directly using their smartphone.

This move into inclusive finance by Facebook has drawn intense attention - both for its potential to drive financial inclusion around the world and for the risks associated with entrusting a sophisticated financial transfer infrastructure and the associated data - to a social media giant with a troubling record.

The 27 partners who joined with Facebook to launch Libra must also consider these risks but must also look at the potential benefits. It is noteworthy to see that a few important global development nonprofits including Kiva, Mercy Corps and Women’s World Banking.

The actual standards for the currency will be managed by a nonprofit in Switzerland called the Libra Association where they believe “that the world needs a global, digitally native currency that brings together the attributes of the world’s best currencies: stability, low inflation, wide global acceptance and fungibility.”

As such, unlike other cryptocurrencies with no intrinsic value, Libra will be backed by “a basket of bank deposits and short-term government securities” and is an example of one way to ensure it develops in a way that puts unbanked and underserved populations at the forefront of the payment system’s value proposition - to protect and serve these populations, rather than exploit their information.

Libra’s partners see an opportunity to dramatically reduce financial transaction costs, increase stability in crisis and conflict situations, and tap into a global platform that already claims 2.4 billion users — a significant portion of whom live in low-income countries.

Facebook’s explicit target is the estimated 1.7 billion developing country citizens without banking services, promising to speed up transactions and cut costs for them.

Some may be skeptical but let’s face it, Libra does address the ‘elephant in the room’, that governments and central banks have lagged behind technological developments and have been extremely slow in enabling low-cost real time transactions.

Migrant remittances represent one of the most important financial flows for developing countries: they contribute to improving the conditions of people who live in poverty, stimulating the development of the most rural of economies, and have an immediate and direct impact on their families and communities. At macroeconomic level, the inflow of remittances strengthens the national balance of payments of the poorest countries by reducing their debt to richer countries.

In a world where the World Bank estimates that annual remittance flows to low- and middle-income countries reached $529 billion in 2018, clearly, low cost transactions are a huge benefit to many in the under developed nations.

Facebook claims that Libra will be more efficient than all existing payments platforms, which are both fragmented and costly. Libra could reduce costs, particularly for remittances where the high costs associated with using traditional methods of sending money abroad such as Western Union or Moneygram is very exploitive and expensive.

For example, remittances have become a lifeline for many people in Sub-Saharan Africa, but the cost of sending money via banks and money transfer operators remains punitively high. On average, it costs 9.3% (of value transferred) to send the equivalent of $200 to the region, the highest remittance rates anywhere on the planet, according to the new World Bank 2019 report. However, the cost drops dramatically by as much as 90% when money is sent through cryptocurrency-based fintech companies like Bitpesa.

As Facebook asserts, its user-friendly Libra system can process 1,000 transactions every second, with almost no transactions costs - anywhere almost instantaneously. In fact, it represents a horizontal and shared network which is part of the worldwide emerging trend of disintermediation, including in the financial services sector.


About the Author: David Galipeau, Founding Partner of SDGx and Director of the Yunus Center Near Future Lab, DeFi Alliance Scholar



Canadian, 35 years veteran of a hybrid business commercial/development career within the finance, publishing, and digital technology in Canada, Europe and Asia both as a corporate senior manager, dotcom entrepreneur and social business innovator. After two successful start-up exits, David joined the United Nations in 2010 focusing on innovation, entrepreneurship, social startups and was Founder of UNSIF, the UNDP impact investing program. Currently, David is a Founding Partner of SDGx - a global research, venture building and investment management firm - Director of the Yunus Centre Near Future Lab and Advisory Board member of the China Association of Social Value Investors (CASVI) and the Artificial Intelligence Impact Association (AIIA).

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