Should Facebook be allowed to create its own currency?

FOR

“Libra is a stone tossed in a pond that will have a positive ripple effect on many things.”

A student on a training course in Australia gets a wire transfer in Libra from his parents, then does his shopping using this cryptocurrency, without needing a bank account. This tool is obviously practical for users, who can send themselves money as easily as sending a photo, or buy things directly on their social networks. But what’s really special about Libra is something else: it’s a stone tossed in a pond that will have a positive ripple effect on many things. As a white paper that Facebook published in June 2019 explains, this cryptocurrency is based on the Libra Blockchain, which features open-source software. This means anyone can use it (consumers, developers, companies), which should break down the current barriers to creating blockchain applications. Let’s celebrate: a technology that up to now has been employed only by start-ups will be available to a broad spectrum of users, which will show us whether an ambitious blockchain-based project can actually work. For the first time, governments and institutions are taking this seriously, and even the European Central Bank is considering launching a public digital currency.

Groundless accusations

Behind this project, there is also the notion that each person can be his or her own bank. That’s why it’s the target of the same backlash that Uber, Booking and others have experienced. But the main arguments against Libra – risks of money laundering, financing terrorism, etc. – are the same as those directed at bitcoin or any other innovation involving blockchains. Facebook is also being accused of pretending it’s a country, since issuing currency is seen as the prerogative of national sovereignty. Yet Facebook isn’t proposing to collect taxes, and no one will force people to use Libra. It’s simple: on the Internet, contrary to Gresham’s Law, good money drives out bad money. If Libra doesn’t offer people any advantages, it will disappear. This is an opportunity for everyone, and should make governments even more willing to fulfill citizens’ monetary demands, for example concerning transparency. Another interesting aspect of the project is its legal structure, via the independent Libra association based in Geneva (Switzerland), of which Facebook (Calibra) is just one member. Clearly Zuckerberg anticipated American objections.

1. According to a Tracfin report in 2016, “The bitcoin blockchain, initially seen as a guarantee of anonymity, in fact offers only partial anonymity.”
2. No country or bank is currently a member of the association.

AGAINST

“Libra has been developed by a company that hasn’t yet proven that it deserves to be trusted.”

Facebook is acting like a chicken that finds a screwdriver in the farmyard … and starts knocking it around aimlessly. Libra is not in the DNA of a social network, contrary to companies like Amazon or Leboncoin – the latter of which actually has an etymological affinity (“coin”). Behind all the big talk, Zuckerberg is really launching a payment mechanism to compete with Visa or PayPal . Especially since, in reaction to criticism, the idea of a synthetic coin was replaced by stablecoins like the libra-dollar, libra-euro, etc., with the Libra having no value in itself. Yet it’s already possible to pay with one’s telephone or an Apple Watch, and Amazon allows for wire transfers of cash.

State of the virtual or virtual state?

In addition to being immature and unoriginal, Libra has been developed by a company that hasn’t yet proven that it deserves to be trusted. An example is the Cambridge Analytica scandal — for which Facebook was fined US$5 billion by the U.S. Federal Trade Commission — and other negligence concerning personal data. The U.S. Congress reminded Zuckerberg of this when he testified on October 23, 2019. The CEO even dared to promise that if he did not gain the approval of American regulatory authorities, he would leave the Libra Association. This is, at best, disingenuous, because clearly Libra can’t survive without Facebook and its two billion members.

And how can we assess his decision to headquarter the association in Switzerland? In the heart of Europe…but outside the European Union, and in a country whose history is closely associated with banking secrecy. Some believe that with Libra, Facebook is acting like a country. This is a charge that must be handled carefully, because Facebook is already like a State, able to collect information on two billion active users, with an uncontrolled capacity for influence and political pressure, and with turnover that reached more than US$ 65 billion in 2019, which ranks Facebook 77th among 210 countries around the world. On the other hand, the criticism that the Libra could be used to fund terrorism – made by people who do not understand how a blockchain works – should be ignored. Libra will be traceable, but frustrating. Zuckerberg could have launched a creative and useful cryptocurrency, for example a primarily B2B one, just to get some experience, combined with a means to allow people to vote on the kinds of ecological and social projects that are important to Facebook’s two billion members. A missed opportunity.

1. Visa, Mastercard, eBay, Stripe and PayPal abandoned the project. Currently, the founding members are Calibra (Facebook), PayU, Farfetch, Lyft, Spotify, Uber, Iliad, Vodafone, Anchorage, BisonTrails, Coinbase, Xapo, Breakthrough Initiatives, Ribbit Capital, Thrive Capital, USV, Creative Destruction Lab, Kiva, Mercy Corps, Andreessen Horowitz, and Women’s World Banking.
2. Five times Madagascar’s GDP.