The current global financial system is outdated and desperately needs an overhaul, demands Facebook’s head of blockchain services, David Marcus, in his blog post dated Sep 25.
The blog details why the existing financial services system needs to be revamped using blockchain technology to make it more relevant to current needs.
The underlying problem of global financial system
According to him, the “money networks” are highly fragmented, all working independently. Besides the regional payment networks, there are central and interbank networks, most of which were built as per the demands of the 1960s and 70s.
Because the underlying framework is different for different institutions or countries, there will always be restrictions in terms of sending and receiving money from different wallets or other payment modes, he writes.
Today, there is more to it than meets the eye when moving money from wallet A to wallet B. Besides engaging extraneous intermediaries; it also eats up a considerable amount of transactional costs.
Introducing Facebook Libra
Marcus, who is currently heading the Libra efforts for Facebook, insists that the Libra project is aimed at curtailing the number of limitations, which, although not conspicuous, becomes evident through process delays, high remittance fees, and inessential back and forth communication.
Drawing an analogy between the Simple Mail Transfer Protocol (SMTP), which is a communication protocol in widespread use today, Marcus argues that Facebook Libra also has the potential to be that protocol.
While facilitating fast, cheap, and secure transactions are only a sliver of the full scope, Libra can primarily tackle liquidity issues by streamlining operational constraints and requirements. Just like SMTP, it will enable merchants, wallets, and service providers to execute real-time settlements from anywhere in the world, without having to worry about liquidity pools, operational complexities, and overhead costs.
Long story short, Marcus calls for a complete makeover of the payment rails as building on existing framework would be just as superfluous as the present system. What it needs is a paradigm shift, asserts Marcus.