A social network must remain a social network and first prove it is indeed one. Not a bank. Damning revelations concerning ethics, privacy and transparency notwithstanding.
For a tech giant with an exclusive window to our private lives, launching its own currency is of course the natural course, to coax us back into compliance, away from brewing skepticism.
Facebook’s sketchy white paper on Libra, its proposed virtual currency, probably drawing much from the libertarian Bitcoin, is no doubt an attempt to capitalise on the 2.4 billion users it has collected in such a short span, eventually to wield a grip on the still vulnerable global financial system gradually recovering from a crisis.
However, the brute power of big tech looms large over sovereign nation states.
In his piece in The Atlantic, professor Eric Posner of the University of Chicago Law School writes Libra will replicate all the current problems generated by Facebook. “In the name of eliminating inefficiency and injustice in the financial system around the globe, Facebook’s new cryptocurrency threatens to replay what’s become a familiar story—of tech companies blithely reshaping the world around them, and significantly increasing their power over people’s lives, while being accountable to no one,” the professor goes on to say.
Power finds ways to propagate at the slightest hint of losing lustre, which the social network is beginning to experience at the moment.
To salvage that lost credibility, Facebook has teamed up with a group of corporates including Visa, Uber, Spotify, PayPal and the like to form the Libra Association, a Geneva-based not-for-profit, just to disrupt and dominate the global economic future.
Given the social network’s massive reach, the proposal, if realised, could transform international payments. That said, the intent is suspect.
“The main concern with Facebook entering the cryptocurrency market is a question of competition law. Facebook can use its market dominance in online advertising, end-to-end encrypted messaging and social media to engage in anti-competitive behaviour,” warns Sunil Abraham of The Centre for Internet and Society, a Bengaluru-based not-for-profit.
Facebook stands 90th in the world in terms of GDP, along with many other firms of such standing which would want to effect and dictate global monetary policy if the project goes ahead and realises its commercial goal, which in all likelihood is very much possible. Because, Facebook has built its applications and networks already. It doesn’t require to sign people up. Lambs for slaughter indeed.
The argument that the network puts forward of uplifting billions excluded from the financial ecosystem in the emerging world, in earnest is a genuine cause. But, one doesn’t need a brand new private currency pepped up by a big tech consortium for that. For instance, in India, where the network has at least
300 million users, Libra cannot operate within the existing norms. Moreover, a foreign private entity controlling the sovereign is rather dystopian.
“So far, India has taken quite a conservative policy towards cryptocurrencies because of concerns from a counter-terrorism and taxation perspective. It is perhaps good that policymakers were waiting and watching. Now the policy will have to address the challenge posed by Facebook entering this market,” notes Abraham.
“Cryptocurrency is ‘virtual money’ which should only be used for non-financial purposes along the lines of loyalty points, airline miles, etc. which could be exchanged for real cash transactions such as discounts. It poses the danger of fraud. If Facebook uses Libra to clock up loyalty points, that’s fine. But can’t link it to your bank account,” cautions Kiran Mazumdar-Shaw.
To digress, bitcoin works as people trust it over government-regulated money. It has no reserve. It appreciates if more people are using it. Now, Facebook is offering a tweak. Unlike Bitcoin, Libra will have a reserve set up by the consortium. In short, don’t trust the government, not the liberal bitcoin, but a private entity with a reserve.
Facebook’s argument may be convincing provided the clout, security infrastructure and reach. But what is worrying is Facebook-led big tech now wants to be a virtual country, with its own economy, not having to bow down to nation states and regulators, because they think they are powerful enough to do so.
This would definitely have banks and regulators in a fix. “While Facebook might have a surveillance friendly position on KYC requirements for users, it might be in greater consumer interest for the government to ensure there is an interoperable competitive oligopoly of cryptocurrency service providers that prevent the winner takes all phenomenon,” observes Abraham.
What’s Libra anyway?
Libra is a virtual currency proposed by a Facebook-led private consortium, with a reserve, unlike the Bitcoin. That means Libra would have an initial capital funded by the consortium to help make it a stable currency such as the dollar. Users could trade globally enjoying lower costs, enhanced speed and high security - on platforms run by Facebook (Calibra) and associates. According to Facebook, Libra is intended to ensure financial inclusion. But how this will be achieved in countries like India, where the currency would not charm the people, government or regulators easily, is not yet quite clear.