Home News The Facebook Libra: New Currency, Familiar Concerns

The Facebook Libra: New Currency, Familiar Concerns

Stockholm (Ekonamik) – When Facebook announced its plan last week to create an “alternative financial system” that relies on a cryptocurrency, Libra, which would not be controlled by central banks, Wall Street or the regular global financial system, criticism from policymakers was swift. The company’s obsession with consolidation of user data for commercial purposes and its lack of respect for privacy are now widely known and understood, but an alternative currency controlled by the social media giant raises new concerns about the digital disruption it could cause altogether.

Rollout of the effort, announced with 27 partners, including Mastercard, Uber, Visa, Spotify, eBay and PayPal, who have so far only committed to investments of at least $10 million and participation in the design of the currency, comes ahead of Facebook’s plan to launch the product next year together with over a hundred partners, and attempts to allay privacy concerns. The Libra currency would use blockchain technology such as that used by Bitcoin and be acquired by customers through a Facebook subsidiary, Calibra, run independently of the social network, and overseen by external companies – the “Libra Association”, based in Switzerland – with voting power over the currency.

Cryptocurrencies are best known for speculative investments through digital tokens like Bitcoin, and for use on the dark web for criminal activity. The Libra digital token, however, would also be backed directly by government currencies, the company says, thereby preventing it from fluctuating in value any more than money in the real world, thus reducing its speculative appeal. The currency would be spent with businesses carrying it, and could be reverted to traditional currencies with ease and speed.

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Calibra, for its part, would not be permitted to share any financial customer data with other Facebook divisions, although it is stressed in the product’s white paper that although the first Calibra offer will be a kind of “digital wallet” to hold the Libra currency across Facebook’s platforms, Calibra would at the second stage of implementation offer financial services, including lending and investing, to customers. As is his wont, Mr Zuckerberg paints his new product in altruistic terms. Poor and precarious workers around the world are locked outside the financial system, with some 1.7 billion people without bank accounts and with punishing fees on alternative loans and transfers. Calibra’s initial offering of a type of “virtual wallet” would allow users access to the currency merely by using one of Facebook’s other products, like WhatsApp.

New and Familiar Concerns

The idea subtending Libra appears to be to mirror the gold standard of the previous century, in which governments guaranteed that currencies could be exchanged for a specific quantity of gold. Libra would be exchangeable for “a basket of currencies and other assets,” the nature of which remains unspecified. But money requires certain properties, such as store of value, means of exchange, value unit of account and means of deferred payment, none of which Facebook has been clear about yet. Other dangers lurk, such as potential over-issuing of Libra without sufficient regulatory oversight, potentially leading to potential exchange rate crashes. If the currency and the investment decisions Facebook makes are managed with as much opacity as it has run its social network, the potential for errors of similar magnitude as its data privacy scandal is great.

There are other notable concerns. Politicians and regulators were quick to warn that Facebook would become a type of shadow bank existing alongside, but not subsumed within, the financial sector. “It is out of the question [that Libra] become a sovereign currency,” French Finance Minister Bruno Le Maire said in an interview with Europe 1 radio. “It can’t and it must not happen… This money will allow this company to assemble even more data, which only increases our determination to regulate the Internet giants.” Mr Le Maire has consequently written to the Group of Seven central bank governors requesting a report by July, citing concerns about privacy, money laundering and terrorism finance.

But what’s in it for Facebook? Facebook is not a philanthropic company, and Mr Zuckerberg’s sole obligation is to make money for shareholders. In essence Libra represents a type of “Uber-isation” of micro-payments: a product or service is paid for on, say, a mobile phone, but the currency is moved in a database located in Switzerland, and the business process is carried out by a company headquartered in the U.S. with technical ownership via a tax structure in Ireland, which raises the familiar questions about how taxes and VAT would be applied to the company. It may be speculated that Mr Zuckerberg’s virtual financial network could be planned as Facebook’s new central business model as a way to recoup lost ad revenue in the future if, say, regulators succeed in forcing the company to improve user privacy. This would still imply unaccountable accumulation and tight monitoring of user data, the ends to which in the context of a privately issued global currency remain extremely unclear.

Financial regulators may well stop Libra before it is even released, if concerns that the technology will enable money laundering and other types of crime associated with Bitcoin persist, and the company does nothing to clarify essential questions as to how the currency will work in practice. The Libra would be an unaccountable global currency essentially controlled by corporate bosses instead of by central bankers, who at least are appointed by democratic governments. By drawing the attention of regulators already looking for ways to reduce Facebook’s outsized and undemocratic influence, Mr Zuckerberg may already have smothered his new invention in the crib.

Image: Facebook en aula2 (Wikimedia Commons)

Glenn W. Leaper, PhD
Glenn W. Leaper, Politics Editor, is a political theorist, analyst, editor and writer. He completed his Ph.D. in Political Philosophy and Critical Theory from Royal Holloway, University of London in 2015. His research focuses on ideology, unaccountable structures of power and surveillance capitalism. He is also a communications consultant, speechwriter, interpreter and journalist. Glenn has an international background spanning the UK, France, Austria, Spain, Belgium and his native Denmark. He holds an MA in Literature and a BA in International Relations.

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