Introduction
This article will briefly identify what Libra is and asses some of the implications Libra may present to businesses willing to accept Libra as a form of payment.
What is Libra?
Libra is a digital currency released by the Libra Association and Libra will be governed by entities of significant standing including Visa, Mastercard, Coinbase and Facebook being the leading entity.
In accordance to Libra’s Whitepaper Libra is “designed to be a Stable Digital Currency backed by a reserve of assets”. The reserve will initially constitute “low volatility assets, such as bank deposits and short-term government securities”
As it is alleged that the assets are low volatility, it would be a reasonable assumption that the fluctuation of its value would not exceed ±5%. However, there is never assurance and the valuation of assets may, for unforeseen reasons, significantly fluctuate in value.
The price of Libra will likely fluctuate consistent with the Reserve’s Asset value.
What is a Stable Digital Currency?
A Stable Digital Currency often refers to a currency:
1. That exists digitally, and does not embody a physical form;
2. Where value is derived by the assets backing it.
A Stable Digital Currency is contrasted to a Digital Currency that derives its value from speculation such as Bitcoin.
The value of a Stable Digital Currency is often derived from the following formula:
The Circulating Supply of a Digital Currency is the total amount of coins that are available for use.
Therefore, whilst there may be 100 coins created, there may only be 80 coins available for use, thus the circulating supply is 80.
For example:
Value of Reserve Assets = 100
Circulating Supply = 100
The value of the Stable Digital Currency is 1.
A speculative coin such as Bitcoin will derive its value from market discovery. This means its value will fluctuate in accordance to the supply and demand of the market and it has no pre-existing assets that would stabilise its price. In other words, its value has neither a floor nor a ceiling. Thus, the value of Bitcoin is often significantly more volatile than other assets often fluctuating between 5 to 10% on a daily basis.
Implications Businesses Should Consider
Non-Cash Payment Facility
Who does this affect?
This will affect businesses that wish to accept Libra as a payment method.
Why does this affect them?
This affects the way that a business is legally able to accept Libra as a payment method. If non-cash payment facility regulations apply, businesses will not be able to simply accept Libra as a payment method and will need to undergo proper compliance procedures. A significantly more tedious process than simply accepting Fiat (cash).
Brief Analysis
A non-cash payment facility describes itself quite adequately. It refers to payments that are not made by physical delivery of Australian Foreign Currency in the form of notes or coins. A non-cash payment facility is regulated by the Corporations Act 2001 (Cth) as a financial service, with the regulatory body being ASIC.
If payments for goods and services are to be made directly with Libra, it is likely that the payment would constitute a non-cash payment and therefore, fall under ASIC’s jurisdiction.
In the event Libra is released, the Libra Association or affiliate parties may take the liberty to bear the liability of providing a non-cash payment facility service (likely for a fee), so that Libra may be onboarded onto Australian merchant platforms similarly to how a merchant in Australia onboards WeChat and Alipay payments.
Point of Sale Terminals
Who does this affect?
This will affect Point of Sale (“POS”) terminal providers and businesses that wish to accept Libra as a payment method.
Why does this Affect them?
POS terminal providers may need to vary certification. Businesses may not be able to accept Libra via a POS terminal until certification variations are made. This means that merchants may need to replace their existing terminals, have a second terminal or update their firmware once approved.
Brief Analysis
If the Libra Association wish to implement Libra into Australian POS terminals, each POS terminal model may need to be reassessed and potentially recertified by the Australian Payments Network due to the variation of implementation as opposed to the existing technology.
The main issue to consider is whether the implementation of the new technology, being Libra, causes any security problems to the existing established payment network.
Anti-Money Laundering
Australian Transactions Reports and Analysis Centre (AUSTRAC) is the Australian body that facilitates Anti-Money Laundering and Counter Terrorist Financing activities.
The Anti-Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (“AML/CTF Act”) is the key legislation the governs all money laundering activities in Australia.
Digital Currency to Fiat Transactions
Who does this affect?
This will affect businesses that wish to provide Libra to Fiat (cash) services, whether intentionally or indirectly.
Why does this affect them?
To provide this service, you will need to receive the correct register with the correct Australian regulatory body, verify your customers identity, and report any Australian dollars received or withdrawn, which can be an expensive endeavour.
Brief Analysis
A transaction exchanging digital currency between Fiat is considered to be a designated service under the AML/CTF Act. This means any entity that exchanges Libra with Fiat will be subject to Know Your Customer requirements, Threshold Reports and Suspicious Matter Reports.
Know Your Customer requirements stipulates an entity identifies their customers, usually with photo identification and residential address identification.
Threshold transactions require an entity to report any Fiat deposits and/or withdrawals that exceed $10,000 to AUSTRAC.
Suspicious matter transactions require an entity to report any transactions of a designated service that looks suspicious in nature.
Libra as a Remittance Tool
Who does this affect?
This will affect businesses that currently – or would like to in the future – provide remittance services, or shareholders who own equity in a remittance company.
Why does this affect them?
The remittance of Libra will likely to be much easier and cheaper in comparison to the services Fiat currency remitters provide. If this is true, there may be a possibility of remittance companies losing significant business and their share prices may drop if applicable.
Brief Analysis
Remittance of Libra is unlikely to be captured by Australia’s AML/CTF Act as the transfer of digital currency is unlikely to be considered an act of remittance or caught by another designated services in accordance to the Act.
Remittance is the act of sending money as a payment or a gift, often to a recipient who is domiciled in another country.
Other Consideration of Note
There are other issues that may be worth considering, including:
– Taxation;
– GST;
– Impact on your financial statements;
– Salary payments in Libra;
– The speed Libra is able to be liquidated;
– Refunds in Libra.
If you would like to further discuss implications of accepting Libra or other digital currencies, you may contact:
Harly Zappino
at h.zappino@agilelegal.com.au