Advertisement

With its Libra cryptocurrency, Facebook wants to disrupt money

Economist Friedrich Hayek argued that corporations should compete with governments to issue currencies. Facebook's Libra is the start.

952_MW_P25_Opinion
Coming soon: the bank of Zuckerberg

In his 1976 book, The Denationalisation of Money, economist Friedrich Hayek made the case that businesses should issue their own currencies to compete freely for use against government currencies. The result would be a general improvement in monetary standards. Hayek's vision took a step closer to reality this week as social media giant Facebook published the white paper for its own new currency: Libra.

Advertisement - Article continues below

Hayek envisaged that the most successful money in his scenario would be based on a basket of commodities and thus its value would be relatively stable. Facebook appears to be taking his advice. It is not backing its coin with commodities, however, but with "a collection of low-volatility assets". Libra will effectively be backed by a basket of currencies. This would make it not dissimilar to the International Monetary Fund's special drawing rights (SDR) foreign exchange reserve assets which are part-US dollar, part-euro, part-yen and part-sterling. It's more like an exchange-traded fund (ETF) than a cryptocurrency. Indeed, rather than follow the bitcoin model, Libra is following the "stablecoin" model, in which cryptocurrencies are backed by actual currencies where, for example, you might only issue one crypto unit for every $1 in the bank. Thus Libra will not be highly volatile like bitcoin, but will move more like a major government currency.

What is Facebook planning?

There are many frightening implications. If you fear that Facebook has influenced the outcomes of recent general elections, how much more powerful does it become when it has an international money system with more than two billion users? How can a government hope to tax and regulate it, when it no longer has control of money? And what are the implications for privacy? If you're a Facebook user, it probably already knows more about you than your spouse. How about when it knows the details of your spending too?

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Facebook has framed the idea with the usual Silicon Valley guff of helping "the unbanked" and it is likely that Libra will liberate many of the financially excluded, as soon as they get their first smartphone, just as Kenya's M-Pesa did in East Africa. But one suspects that Facebook's ultimate goal is not nearly so altruistic.

Libertarian purists don't like Libra because it is not properly decentralised in the way that bitcoin is, despite all sorts of crypto buzz words appearing in the white paper. The left doesn't like it because it signals yet more power and influence heading the way of large tech.

Politics versus convenience

Unsurprisingly, the authorities, particularly the European Union, are up in arms. French finance minister Bruno Le Maire said Libra must not "become a sovereign currency". G7 nations are already establishing a group to examine the risks the currency poses to the financial system. It's as though they already knew it was coming.

Advertisement - Article continues below

But Facebook won't be short of lobbying power as well as everyone's "favourite" politician, Nick Clegg, Facebook has hired bank lobbying expert Ed Bowles, who joins the company from Standard Chartered in September. Facebook is well aware of its need to get regulatory acceptance for Libra. It has already set up the Libra Association in Switzerland to govern the coin, and has partnered with 28 corporations, including Visa, Mastercard, PayPal, eBay, Spotify, Vodafone and Uber. The presence of these established firms in the governing body is designed to gain trust in the system from both regulators and users. It's also worth noting who is absent from the association. No Apple, no Google, no Amazon and perhaps most significantly no banks.

Facebook itself will not be part of the body, though it will appear via its subsidiary, Calibra. Calibra is the Libra wallet (and controller of its users' financial and social data). Like Facebook and WhatsApp, Calibra will be free. Don't forget the golden rule "When something is free, you are the product."

In short, Libra is another step in the evolution of Big Tech as it grows more powerful than national governments. The implications are enormous.

Advertisement
Advertisement

Recommended

The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
Bitcoin has just crashed hard – where will it go next?
Currencies

Bitcoin has just crashed hard – where will it go next?

The bitcoin price has taken a beating, down by 15% in one day. Dominic Frisby looks at what’s behind the crash, and where the cryptocurrency might go …
25 Sep 2019
Bitcoin has just “halved” again – what does that mean, and should you buy in?
Bitcoin

Bitcoin has just “halved” again – what does that mean, and should you buy in?

Cryptocurrency bitcoin has just hit a milestone, where the rate of new coins being produced halves. Dominic Frisby explains what that means.
13 May 2020
Is bitcoin going mainstream?
Bitcoin

Is bitcoin going mainstream?

The cryptocurrency suffers from all the problems it has always had and that may never change. But digital currencies more broadly may be about to take…
9 May 2020

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020