Research carried out last year by the Central Bank of Malta indicated that cards are more popular than cheques as an alternative to cash. It also confirmed that although the use of modern methods of payments such as cards has increased, cash remains the preferred way to pay for groceries, consumables, non-consumables, utility bills and wellness services.
So although there is a marked increase in online payments, direct debits and prepaid cards, cash still rules the roost. It stands to reason that this high percentage of cash transactions leads to a greater propensity for tax evasion (essentially in VAT). This is confirmed by a recent Eurostat report which reveals that Malta suffers from the highest percentage of tax leakage in Europe. Its revenue loss due to evasion in 2016 amounted to a cool €230 million or 2.39 per cent of gross domestic product (GDP).
The question that follows is: can the encouragement of a more cash-less society mitigate this haemorrhage of tax revenue loss? As an illustration, some Asian countries have been cash-less for many years and people use their mobile phones for everyday purchases. This includes micro payments such as buying newspapers, bus journeys, coffee or tea from cafeterias, etc. Perhaps the quiet revolution to switch to cash-less payments will hit Malta early next year when (and if) Facebook succeeds in its revolutionary coin - called 'Libra'.
Some brand this coin as a 'cryptocurrency' and if this is true, then Malta is well poised to regulate it. It also spent millions to launch Blockchain and DLT concepts when it actively sponsored Delta Summits and Sigma events. Some argue that, once launched, Libra will be good for the crypto industry while others dislike the fact that Facebook - being a big tech company - appears to be riding roughshod on a DL0T technology that is still not globally regulated.
The vagaries of Bitcoin values in the market have troubled many investors and those who speculated in its future ascent have burnt their fingers. In addition, accusations that Bitcoin began its trajectory as an anonymous currency habitually used by extortionists and drug cartels have certainly tarnished its image. So far, one may observe that many much-hyped blockchain projects have failed to meet expectations and, despite several attempts, few have been able to convince mainstream consumers to use cryptocurrency to pay for daily purchases.
Back to Libra coin. It will run on a blockchain, but it will be a far cry from Bitcoin. It has the ambitious goal of bringing financial services to the 1.7 billion people around the world who still do not have bank accounts. It also proudly offers to let users buy items - or send money to others - with nearly zero fees.
To begin with, it will not be a purely digital asset with fluctuating value but will be engineered to maintain a stable value. In theory, it will also be fully backed with a basket of bank deposits and treasuries lodged with high-quality central banks.
Back to Bitcoin - a unique advantage of using its network is that it is public, meaning that it can be used by anyone with an internet connection. It can run the network's software, and help validate new transactions. In fact, armed with a powerful computer, devotees can even mine fresh coins by adding new transactions to the chain. In sheer comparison, Libra's network is different since it will be running a 'validator node' that requires permission.
At the outset, Facebook wanted to have a syndicate of operators so it has signed up a number of collaborators such as Lyft, Spotify and Vodafone to participate in the network - each of which has invested around $10 million in the project - to validate transactions.
The drawback to Libra when compared to crypto currencies is that Libra networks are more vulnerable due to the centralisation of power and higher vulnerability from hackers to attack the network. Libra blockchain is not decentralised in the way Bitcoin is. Libra's nodes will be only run from the servers of the Libra Association.
Bitcoins use a more decentralised technology which makes them extremely difficult and expensive to manipulate transaction records in such networks. On the other hand, public blockchains use too much power and, in the advent of a global drive to lower CO² emissions from power stations, this is not welcome and is probably the biggest obstacle to the global adoption of cryptocurrencies. According to the Libra white paper, its system will be able to process 1,000 transactions per second, much faster than Bitcoin, which can only process a handful per second.
Quoting David Marcus, who has overseen the Libra project for Facebook, he reveals that financial and social data will not be "commingled," and that users can keep their digital wallets separate from their Facebook profiles. He also said that Libra's involvement would be handled through a software 'wallet' subsidiary called Calibra, registered in Switzerland. This company will store user funds and act as an initial on-ramp to the Libra coin.
Critics say that Libra's marketing blast and its big razzamatazz song is simply a smokescreen to offset the firm's appalling record on data privacy. Can Libra users demand that the currency be more decentralised and tamper-proofed?
Another obstacle is the resistance to Libra from major countries in Europe such as France and Germany, who want to block it - accusing it of challenging the 'monetary sovereignty' of governments.
Others say that Libra is a surreptitious plot to fish for our data, mostly targeting our financial and health status. Many are sceptical of future monopolistic abuse of the dominant position enjoyed by Facebook. Another hurdle is the tax leakage following millions of Libra transactions if and when this goes mainstream. If all goes well, perhaps Father Christmas will surprise us with gifts of Libra coin stuffed in our season's gifts and hampers.
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George Mangion is a senior partner of an audit and consultancy firm