The company has announced plans for its own currency and banking system. Regulators and big banks aren’t the only ones wondering what it all means.
It sounds like the tagline for the next Demolition Man: “Facebook announces the 2020 launch of its own digital currency and wallet.”
But this isn’t science fiction. Facebook’s new Libra coin is making some people, including traditional bankers, very nervous.
The social media giant will launch Libra on its own blockchain network along with Calibra, the company’s digital wallet, in 2020. Libra promises quicker, cheaper and more transparent online transactions, especially for those sending money overseas. Twenty-seven other companies join Facebook in comprising the Libra consortium. It is a powerhouse group that includes more than a few household names, among them PayPal, Mastercard, Lyft, Visa and Spotify.
But the consortium has much bigger ambitions than simply making it easier to buy things online. Libra will transform the entire global financial system, according to those who developed it. The first mission outlined in Facebook’s June 18 press release is to empower the billions of adults worldwide living without an active bank account, a scenario that disproportionately affects people, and especially women, in developing countries.
Critics of Libra have no shortage of apprehensions about what havoc a corporate-founded digital currency and native blockchain could wreak, especially when crypto remains so misunderstood by the general public.
“As nation-states continue to lose grips with the internet economy, the dystopian idea of a sovereign, corporate-led, digital nation is taking shape, and it’s freaking scary,” wrote Stefano Bernardi, a crypto investor, in Token Economy.
Many of the criticisms leveled against Libra are expected. Current crypto users, especially self-described purists, believe any amount of centralized decision-making power is inherently at odds with crypto’s core value and mission: complete decentralization. Facebook tried to resolve this tension by sharing its power with a 27-member consortium, but it’s not clear that the result — 28 major corporations banding together to liberate the world economy and empower the impoverished — is much of an optics improvement.
There is also concern about Libra’s open-source platform. Hackers are rampant in the crypto world, and it’s not inconceivable that a hacker could use the platform’s source code to create a malicious app that attacks and drains other wallets.
Is it realistic to think Libra could seriously disrupt a central banking system that has been in place, in some form or another, since the 17th century? And is any potential harm outweighed by Libra’s role in helping to speed along the development of crypto adoption and regulation?
If Libra succeeds in attracting users, Facebook and other corporations will be tasked with enforcing a monetary policy that is yet to be developed. Depending on the depth and breadth of such policy, Libra could have the opposite of its intended liberatory effect, as corporations would now be making decisions about consumers’ money.
A fake image has been circulating on social media depicting a standard Facebook popup telling the user they’ve been blocked from their digital wallet for 30 days. “You’ve purchased something that goes against our community standards,” the popup states. The image illustrates widespread concern over corporate involvement in personal monetary decisions, and highlights valid public cynicism about being asked to trust one of the world’s most notoriously exploitative and deceptive companies.
As corporations gain more power over the economy, they could “demote the power of nation states,” according to Claire Finkelstein, a national security researcher at the University of Pennsylvania Law School. In theory, this could lead to a scenario in which small countries lose all control over their economies and ability to regulate monetary policy. Because Libra will be backed by major fiat currencies, investment in the coin could result in economic redistribution in favor of the world’s largest economies, further hurting developing countries.
Meanwhile, the Bank for International Settlements (BIS) cautions that rising corporate power over the economy would hurt competition, and calls for policies that guarantee a “level playing field for big tech companies and banks.”
Some banks are refusing to watch from the sidelines, seething and worrying, while Facebook shapes and builds the future. Soon after Facebook’s announcement, the Bank of England invited tech companies to store their assets in its vaults.
Governments, meanwhile, are likewise positioning themselves to influence the arrival of a potentially revolutionary force in global finance. On July 18, Congress will hold the first of what will be many hearings on Facebook’s planned coin and the Calibra consortium. According to Bernardi, the U.S. SEC and EU finance authorities both have serious misgivings about Facebook’s project, but will likely prove unable to stop the company from building on the Libra blockchain. At best, they will be able to block the citizens of the major Western economies from using the currency. This might ultimately have the same effect as blocking its development. While Facebook has positioned Libra as a response to the banking crisis in the developing world, it needs the participation of Americans and Europeans to succeed at scale. Take that away, and Libra most likely crashes to its knees.
So, will the same platform you used to stalk your high school crush soon hold all of your most valuable personal information and your money? Maybe. And that is freaking scary.