Social Studies of Finance: Payment Systems, Libra and Finance

This report delves into the social studies of finance, focusing on payment systems. It begins by defining payment systems and exploring national and international transactions, including the use of checks, drafts, and electronic transfers. The report highlights the risks associated with online banking and digital platforms, such as hacking and data security concerns. It then examines Facebook's Libra, a cryptocurrency based on blockchain technology, discussing its potential benefits like increased security, faster transactions, and lower costs compared to traditional payment methods. The report analyzes the European Commissioner's statement regarding Libra's potential to disrupt the existing economy, acknowledging both its advantages and limitations, such as its applicability to only a portion of the economy. It concludes by emphasizing the transformative potential of Libra on payment systems within and outside the country.

Running head: SOCIAL STUDIES OF FINANCE
Social Studies of Finance
Name of the Student:
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Author Note

3SOCIAL STUDIES OF FINANCE
Table of Contents
Question 1 2
National Transaction 2
International Transaction 4
Facebook’s Libra 5
Question 2 6
Reference 11

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Question 1
The payment system is the process by which a financial transaction is settled between
two parties. There are various financial institutions and other companies that help people to
make transactions. There is a network that is used commonly to make transactions that are
known as an operational network which form as a linkage between the bank accounts that are
involved in the transaction process. Payment systems are used both in case of national as well
as international transactions. The use of negotiable instruments like cheques and drafts are
still used throughout the world. In the case of electronic payments, the money from one
account is transferred to another account electronically.
National Transaction
The use of a payment system that is very efficient helps to reduce many costs. These
costs include the transaction cost of goods, assets and other services throughout the country.
The use of a good payment system helps to develop the country’s economy in a proper way.
The national transactions in the world are made with the use of the cheques and the drafts.
The national transactions are also made with the use of the other methods of transactions like
online banking that exists in the country (Pang et al. 2019). The online banking is carried out
with the use of the internet. Here the bank’s website acts as an agent between the two parties
that are involved in the transaction of the money. Here, the parties involved in the transaction
are mostly dependent on the technology that is offered by the bank. The banks’ websites are
not always safe and sometimes there are websites that are created by hackers to get the
information about the password and the username of the user of the bank or the account
holder of the bank (Schiepers et al. 2018). This can lead to the hacker getting access to the
bank account of the bank account holder. These websites are created by hackers and are a lot
similar to the bank’s own website. So, the account holder of the bank gets confused whether
it is the original website or not. Sometimes the account holders of the bank do not notice that

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the website on which they are making the transaction is not the website of the bank and
accidentally give their username and password on the website that is made by the hacker.
This leads to the account holder of the bank giving details about his or her account and also
his or her username of the bank on the website made by the hacker (Schmeling 2019). This
leads to the problem that the account holder of the bank giving the username and password on
the website made by the hacker. Also, there is a problem that the information of the customer
is stored in a single database. If this database is hacked then it can lead to the problem that the
hacker getting all data about the account holders of the bank. The hacker can then easily steal
money from the account holders of the bank. Also, there are certain digital platforms that
work as a third party between the parties that are making online transactions. These digital
platforms generally are used for the transaction between two parties. Also, sometimes these
digital platforms also provide the service that the account holders of the bank make use of
them for their day to day purchases. There are various services that are covered in these
digital platforms. The transaction is made in these digital platforms by the digital platform
accessing the bank’s online transaction system as a third party. Also in this type of
transaction, the account holders or the users of the banks have to give too much information
about their bank and also their personal information like name, age, etc. The transactions here
are stored in a single database and also too much information is available about the user or
the account holder of the bank on the website of the bank or on the digital platform that the
account holder of the bank uses.
International Transaction
In the case of international transactions, the account holders of the bank make use of different
digital platforms like PayPal. These platforms act as an interconnection between the users of
the bank account and the foreign person that the user wants to send money to or receive
money from them (Taskinsoy 2019). These websites are also used for buying and selling

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goods and services. These websites also help the users to convert their money to another
currency. The users of the websites have a specific username and password that they use to
authenticate their login on the website of the digital platform. They can then send and also
receive the money from the websites of the digital platform (Taskinsoy 2019). These digital
platforms convert the money of the sender from the currency of the sender’s country to the
currency of the receiver’s country. The senders and the receiver have their own username and
password. But there is a problem that sometimes the hackers can hack those websites or get
information about the users. There are several hacking techniques that are used by hackers to
get access to the bank account of the user. This can lead to the hacker making fake
transactions to steal money from the user. Sometimes the hackers create a website that is a lot
like the website of the digital platform that is making the transaction (Vos et al. 2017). Then
if the user by accident accesses the website made by the hacker and then uses the username
and the password then the hacker will get the username and the password of the user that is
making the transaction. Then the hacker can use this username and password to access the
digital platform of the user to steal money from the user. So, there are various hacking threats
that the users face while using and making a transaction with these websites. Also, the
transactions and the data of the user are stored on particular databases (Vos et al. 2017). So, it
is not safe for banks and also the bank account holders to authenticate and use these websites.
Facebook’s Libra
Libra is a cryptocurrency that is developed by Facebook and is based on the concept
of blockchain. In the case of Libra, the data of the currency is not controlled by Facebook or
any other company. In the case of Libra, the price of the currency is not regulated by
Facebook or any other bank. Libra is controlled by an algorithm that is very secure. The price
of Libra is also controlled by this algorithm. The Libra is based on the blockchain concept so
the information of the transactions that are made is stored in the form of blocks (Vos et al.

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2017). These blocks contain information regarding the one making the transaction and the
one receiving the Libra. Here, the blocks also contain information regarding the transaction
time and date (Taskinsoy 2019). The users of Libra are not supposed to provide their personal
information. Instead of providing personal information, the users of Libra are provided with a
public key and a private key. The public key of the user of Libra is used to check and verify
the transactions that are made by the user. The private key of the user of Libra remains with
the user. So, the users of Libra do not have to provide any personal information. Also, there is
no chance of corruption or hacking as Libra will not be controlled by anyone. Libra is also
supposed to be faster than the transactions that are made online and also on the bank websites
(Taskinsoy 2019). It is easy for the users of Libra to track all the transactions easily as it is
made public. So, users of Libra are much more secured than the once who make a transaction
through the use of the bank website and the digital platforms. The data about the transactions
of Libra are not stored on a single website but are stored on multiple websites. There are
various benefits of using a Libra rather than just security (Taskinsoy 2019). The cost of
transferring Libra from one person to another person is very low. This is an advantage that
Libra offers to its users over the ones who use the normal transactions that is the transactions
through the bank website and the digital platforms. Also, rewards are also provided to the
users of Libra. These rewards are greater than the rewards or loyalty points that are offered
by the users of the bank. There are various benefits that Libra offers to its users like the
stability is good, the transactions are fast (Taskinsoy 2019). Also, Libra is very secure for the
users as the transactions made are not reversible. The transactions made by Libra cannot be
modified. The transactions are easy to track as they are made public. Libra will be an option
for people who make and receive transactions online. It provides various benefits that are not
available in case of normal transactions. So, Libra will transform the transaction and payment
system that is used within and outside the country.

3SOCIAL STUDIES OF FINANCE
Question 2
The statement that is made by the European Commissioner in the case study is
partially true. Margrethe Vestager has said that Libra has the possibility of creating an
economy that will be different from the existing one (Xie et al. 2019). In the existing banking
system, the transactions are carried out either online or with the use of cheques or with the
use of drafts. In the online transactions, the money is simply deducted from one account and
sent to another account (Baudet et al, 2019). Here, there is a transaction cost that is charged
by the bank for the transaction that is made by the account holder. There are several types of
transactions that are carried out in both the payment systems that is the International and the
National payment systems. There are several risks that are involved in the International and
National payment systems. But the national and international transactions in the existing
payment system of all countries are able to cover all aspects of the economy (Baum, Freese
and Kelso 2019). Libra can only be used for a certain part of the economy that is the share
market and also in the real estate market. This is due to the reason that the online transactions
for the general people are easy to use and the people and very accustomed to using the
traditional system (Bernabei et al. 2018). The national transactions are also made easier with
the use of the digital platforms that are used for the day to day transactions. There are various
payment methods in different countries. But here the price of the currency is a factor that can
be considered. In the normal economic system, the price of each currency in the world is
decided by the central bank that is in power in that country. So, there is a chance of bias that
can occur. There is also a chance of improper decisions on the price of the currency
(Bernabei et al. 2018). But Libra will be a single currency that will be followed by all the
nations of the world. This will be helpful in many ways. This is due to the fact that the price
of Libra will be consistent throughout the world. In the case of the normal currency that is
used in the world, the transactions are carried out through a medium (Bernabei et al. 2019).
This is medium also converts the currency from one currency to the currency of the recipient

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and then the recipient can transfer the money to his or her bank account. But in the case of the
online transaction, there are different parties that are required. These third parties also charge
some amount for the transaction that the users of the third party make. So, these transactions
are costlier (Bernabei et al. 2018). Here, Libra plays a good role as the cost of transferring
Libra among each other is easier and also the transaction cost is much less. The transactions
are faster and are much stable than the ones that are made through the normal methods. There
are several other advantages that Libra has over the normal banking system (Bernabei et al.
2018). In the existing financial system, the money is transferred with the use of the different
channels and also many third parties are involved. Also, the transactions are very costly. This
leads to the problem that the threat increases (Groza et al. 2017). These include many types of
threats like cybersecurity threats, the threats that there can be a failure in the transactions and
also there can be errors. These issues will not be faced in the separate economy that will be
created by Libra. The separate economy will not include the day to day transactions that are
essential for the life of the people (Carlotto et al. 2017). But mainly the business activities
will be carried out. Libra being a decentralized currency so there will be no actors involved in
here. The only actor here, in this case, is the algorithm that controls the Libra. Here in the
Libra, social networks are the ties that are created between the people. In Libra, the
interaction between people will be analyzed with respect to finance. The transactions of Libra
are divided into three types. These three types are strong ties, the mid-range ties, and the
weak ties. In strong ties, the financial relationship is between the family member. Here the
transactions are between the closest people. In the mid-range ties, the transactions are
between distant families and friends who are at a further distance or have a little less
acquaintance. And then in the weak ties, the financial transactions include the ones made
between the business partners or others for business (Fowlie 2017). The transactions have
been classified into three types of trust factors. In the first type of trust factor, the ties are

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supposed to be very strong. This type of ties is known as reflexive trust (DeLillo 2018). In
this type of transaction, the Libra is exchanged for unknown products. There are also no
regulations in the market. The profit is converted to the sellers. Here the culture of the people
is mobilized to understand the levels of human relationships. The economic interest of the
two parties involved in the Reflexive trust transaction is hidden (Herz, Groß and Schiller
2019). There is a second type of relationship which is known as obligatory. In the obligatory
the relationships that are captured range from the medium to the very strong. Here the
transactions are made for the unwanted products. The profit-making of the sellers is covered.
The transactions that are made in this market do not have any regulation. Here the affection
of the people is mobilized (Kang et al. 2018). The norm and the affection between people are
reciprocated as the economic interests are hidden, downplayed and moderated. In the third
type of transaction, the ties or the relationship between the people lies between the weak and
the medium range (Herrero-Garcia et al. 2018). Here the products that are bought and sold
are wanted by are not commital. Here the transactions that are carried out have some market
regulations that they have to abide by. The profit-making is converted to the sellers. Guanxi
is used here to increase the trust between the people (Li et al. 2019). This also increases the
affection and the asymmetry of the obligations that are made. The price of the product
involved in the transaction is dependent on the willingness of the agent to make cuts in the
price. The more the agent reduces the price of the product the more it implies that the bond
between the agent and the person is strong. The bond here is referred to as the guanxi (Kang
et al. 2018). The people in the transaction decide the transaction based on the social relations
that they have with each other. The performance of the people in the past indicates the
performance in the future. In the traditional system, the money in the bank means that the
money belongs to the banker. The relation between the customer and the banker who has
taken deposit of the money is that of a creditor and a debtor. Here, the creditor is the

3SOCIAL STUDIES OF FINANCE
customer or the account holder of the bank and the debtor being the banker who has taken the
deposit of the money. The sellers in the financial transactions try to make the buyers believe
that the buyer will get a high return from the investment that has been made by them.
Financial construction reveals the needs of the investor (Li et al. 2019). The numbers are one
of the important factors that are involved in accomplishing the trading. The numbers in the
trade are analyzed in Libra. The trade is accomplished with searching and then by creating an
assembled collection of the search results. In the case of electronic trading, Graphical User
Interfaces are used to make the users and the traders understand the numbers that are used for
making decisions in the financial market (Kang et al. 2018). The intermediaries of the
infrastructure are hidden so that the trader assumes that he or she is having a direct interaction
with the other party in the transaction. The tools that are required to evaluate the transaction
like the analysis of the transaction and the recommendation of the transaction is eliminated.
In the case of passive investing the strategies for buying and selling and the buying of the
funds are required to track the market (Li et al. 2019). The traders can only see the numbers
involved in the transactions and cannot see the strategies that are implemented by the other
traders so they cannot copy them to earn their own profit. So, Libra can create a separate
economy by it still will be somewhat dependent on the existing economy. It will be a peer to
peer connection between the traders but it will also capture the relationship between the
parties of the transactions.

3SOCIAL STUDIES OF FINANCE
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