Libra: Facebook’s Audacious Bid For Global Monetary Control

Payments can happen cheaply and easily without banks or credit card companies. This has now been demonstrated – not in the United States but in China. Unlike in the US, where numerous firms feast on fees from handling and processing payments, in China, most money flows through mobile phones nearly for free. In 2018 these cashless payments totaled a whopping $41.5 trillion; and 90% were through Alipay and WeChat Pay, a pair of digital ecosystems that blend social media, commerce, and banking. According to a May 2018 article in Bloomberg titled “Why China’s Payment Apps Give U.S. Bankers Nightmares”:

The nightmare for the U.S. financial industry is that a technology company—whether from China or a homegrown juggernaut such as Inc. or Facebook Inc.—replicates the success of Alipay and WeChat in America. The stakes are enormous, potentially carving away billions of dollars in annual revenue from major banks and other firms.

That threat may now be materializing. On June 18, Facebook unveiled a white paper outlining ambitious plans to create a new global cryptocurrency called Libra, to be launched in 2020. The New York Times says Facebook has high hopes that Libra will become the foundation for a new financial system free of control by Wall Street power brokers and central banks.

But apparently Libra will not be competing with Visa or Mastercard. In fact, the Libra Association lists those two giants among its 28 soon-to-be founding members. Others include Paypal, Stripe, Uber, Lyft, and eBay. Facebook has reportedly courted dozens of financial institutions and other tech companies to join the Libra Association, an independent foundation that will contribute capital and help govern the digital currency. Entry barriers are high, with each founding member paying a minimum of $10 million to join. This gives them one vote  (or 1% of the total vote, whichever is larger)  in the Libra Association council. Members are also entitled to a share proportionate to their investment of the dividends earned from interest on the Libra reserve – the money that users will pay to acquire the Libra currency.

All of which has raised some eyebrows, both among financial analysts and crypto activists. A Zero Hedge commentator calls Libra “Facebook’s Crypto Trojan Rabbit.” An article in FT’s Alphaville calls it “Blockchain but Without the Blocks or Chain.” Economist Nouriel Roubini concurs, tweeting:

It will start as a private, permissioned, not-trustless, centralized oligopolistic members-only club. So much for calling it “blockchain”. … [I]t is blockchain in name only and a monopoly to extract massive seignorage from billions of users. A monopoly scam.

Another Zero Hedge writer calls Libra “The Dollar’s Killer App,” which threatens “not only the power of central banks but also the government’s money monopoly itself.”

From Frying Pan to Fire?

To the crypto-anarchist community, usurping the power of central banks and governments may sound like a good thing. But handing global power to the corporate-controlled Libra Association could be a greater nightmare. So argues Facebook co-founder Chris Hughes, who writes in The Financial Times:

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Mark Borkowski 7 months ago Contributor's comment

The Montauk Conference featured every possible subject regarding the Cryptocurrency market. One of the blogs published by Fortune published all of the findings. Virtually all of the speakers and papers delivered (and published).

The Term Sheet (published by Polina Marinova, wrote in part:

Before Facebook's Libra project made its public debut, it recruited high-profile backers that would act as its launch partners. They include Visa, Uber, Mastercard, PayPal, and Stripe.

A New York Times report says that some of those partners are approaching Libra warily and signing non-binding agreements to join the effort so that there's an easy out if they didn't like the direction of the project.

Companies are hesitant to associate themselves too closely with Libra because of "Facebook's issues with regulators around the world, the company's shaky track record on privacy and how it treats corporate partners, and the uncertain legality of cryptocurrencies," according to the report.

This one-foot-in-one-foot-out approach allows brands like Visa and Mastercard to get information about the creation of a payments service that could affect their business immensely while simultaneously having the option to easily dip out should something go wrong.

And there are quite a few things that could go awry given factors like regulatory gray zones, open questions on privacy, and public perception. According to the NYT, Facebook approached a number of big financial companies, including Goldman Sachs, JPMorgan Chase, and Fidelity, about participating in the project, but they declined, in part because of regulatory questions about cryptocurrencies as a whole.

I'm watching with great interest to see how Facebook will get this off the ground all while attempting to circumvent criticism from the people whose approval and support it needs most. The New York Times had a report of Federal Regulators having great skepticism about the future of cryptocurrencies (June 26th).

Bill Johnson 7 months ago Member's comment

Thanks Mark Borkowski, this is a lot of pertinent info that was not in the original article but important to know! Makes me realize the hype over #Facebook's #Libra may be more overplayed than I realized. $FB $LIBRA

Gary Anderson 7 months ago Contributor's comment

I doubt if mass amounts of people will pile into a zero interest vehicle. And many don't trust Facebook. And banks are insured. And didn't Second Life have a virtual currency? So I don't get the crisis.

Currency Trader 7 months ago Member's comment

Yes, some people don't trust #Facebook with their personal data (nor any other site). But FB has millions of users. If only a fraction adopt #Libra, it will be highly successful. Plus their platform will likely get many to use it, as opposed to just holding it for investment purposes. A stable coin is quite an intriguing idea. And Facebook has real expertise in taking an idea and turning it into a powerhouse. So yeah, I think Libra could be big! $FB

Gary Anderson 7 months ago Contributor's comment

But how would it be a threat to the Fed?