Facebook cannot be said to lack imagination or nerve. The titan of Menlo Park, California is accused on both sides of the Atlantic of undermining public debate in the West, of endangering democratic processes in the free world, and of favoring populist and anti-establishment movements. Facebook is also accused of facilitating the spread of ethnic hatred and helping authoritarian regimes crackdown on dissent, as well as repeatedly violating users’ privacy, abusing its dominant position and evading taxes. Even so, Mark Zuckerberg’s group has decided to take another quantum leap, printing money as if it were the largest sovereign state in the world.
Starting in 2020, Facebook will have its own virtual, digital currency, named Libra and based on blockchain technology. The community of 2.5 billion friends will be able to exchange money, buy products and at some point use financial services traditionally offered only by banks, such as deposits and loans.
The new currency will be backed by an ad hoc fund, already joined by 28 major companies, including Uber and Mastercard, each paying at least 10 million dollars. The 28 are expected to grow into 100 founding members by the launch date. However, little else is known beyond Facebook’s announcement. Libra will be regulated by the Libra Association, a Swiss institution independent of Facebook, to be appointed by the founding companies, and the cryptocurrency will also have its own central bank known as Libra Reserve. We know nothing more of the rules and governing bodies that will control the operations of the digital currency.
Facebook’s challenge is to make cryptocurrencies mainstream, popular and commonly used, while avoiding the risks of fluctuations in value seen by Bitcoin and other players in the current market. Libra payments can be incorporated into any business wishing to adopt the new digital currency, while Facebook will launch an app, Calibra, a digital wallet integrated into its social media, from Facebook and WhatsApp to Instagram. The only step required will be to upload ID (to Libra), providing the option to make or receive payments anonymously.
The information provided by Facebook adds little else; analysts and politicians wonder whether Libra will be a currency, a security or a fund. This is no small matter as the nature of Libra will have significant consequences from the perspective of independent regulations, not those self-imposed by Facebook, but those with which it must comply. Its nature is also a major concern in terms of which body will be responsible for overseeing its work. Zuckerberg is attempting to convince international regulators that Libra is not intended to transform Facebook into a bank or fund, just as it has so far refused to be treated as a publisher or telecommunications platform, requiring rules divergent from convention and suited to these times of digital revolution.
This is where the issues begin, given the history of Facebook. Doubts have arisen over replacing currencies issued by central banks with one governed by Facebook, in particular whether their cryptocurrency can be entrusted to a digital platform which, in recent years, has breached every possible rule, first by denying any wrongdoing, then by apologizing but continuing to betray the trust of users and regulators.
It therefore seems unlikely that a world committed to limiting the power of Facebook—not only in terms of their business monopoly, but also in terms of their weakening of society’s intermediary bodies and public opinion, with detrimental effects on open society—would permit the Silicon Valley giant to also revolutionize the global payments system and let it take a dominant position in financial services as well.
The G7 decided to address the issue, by speaking out against the idea that a private company could have the same privilege—granted to sovereign nations—of creating payment instruments without democratic controls or obligations of any kind. The same doubts have been cast by the European Central Bank and the Bank of England. India has said it is ready to ban its circulation and even Donald Trump has spoken out negatively on Twitter. U.S. Senate hearings have resulted in the same negative outcome, while the Bank for International Settlements, the central bank of the central banks, has warned of the potential risk to competition, financial stability and the welfare state in the event that Facebook is allowed to launch Libra. The risks are obvious: via Calibra, the digital wallet, Facebook will be aware of the income and expenditure of its users and could offer merchants a sophisticated algorithm to maximize the price that each individual user can afford for any given product.
Facebook will also know all the secrets of companies that move money through its digital wallet, resulting in a competitive advantage over any other commercial operator. There will be no commissions on payments, but Facebook and the other founders will be able to reap the interest accrued on the dollars and euros deposited in the bank to buy Libra, so much so that a return on the initial investment is expected in a short time.
Governments, regulators and antitrust authorities will also have to ask themselves what would happen if the currency were digitally stolen or the Libra system were hacked: who pays, who guarantees the deposits? It is very dangerous, experts say, to allow the launch of a private system of global payments that, in the event of problems, will be too big to fail and will need public money to settle losses.
Facebook’s challenge is consistent with its long-standing strategic goal, to directly connect as many people as possible without regard for the consequences of the possible disintermediation of relations between customers and banks, supervisory authorities and monetary systems. In early 2019, Zuckerberg hinted that in the face of criticism of his business model, centered on profiling users for advertising purposes, Facebook was beginning to transform itself from a public square into a virtual ring where it could exchange money and goods in a safe and easy way. In technical terms, we could say “out of the frying pan into the fire.”
Christian Rocca is editorial director of Linkiesta and columnist of La Stampa. His last book is Close the Internet - A modest one proposal (Marsilio editori).
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