Facebook sent shockwaves through the world of finance this week with its vision to create ‘Libra’ – “a simple global currency and financial infrastructure that empowers billions of people”.
The underlying proposition is right: digital currencies have the potential to foster positive innovation, widen access to financial services, and give people greater control over their money. And our monetary system – increasingly in the grip of a tiny group of banks and card companies – is ripe for disruption and reform.
But ceding even greater power to a self-selecting cartel of tech companies is not the answer.
Libra’s claim that the currency will be designed and operated “as a public good” with “decentralised governance” is hard to tally with an operating structure comprised of unaccountable and highly-centralised global corporations such as Facebook, Uber and Paypal.
One of the primary stated aims of Libra is to advance financial inclusion by targeting ‘unbanked’ populations on the fringes of the existing financial system. This is a laudable aim, and Libra’s white paper rightly points out that such groups can be excluded from traditional banking services because they lack sufficient funds, or the necessary documentation to open an account.
But again, it’s hard to take this seriously, when the currency’s co-founders include the likes of Visa and Mastercard, whose global effort to undermine cash has only increased financial exclusion, by depriving low-income populations of their preferred – and often only – means of payment. Mastercard’s moves to undercut the UK’s cash machine network have led to an unprecedented rate of ATM closures, while Visa has been bribing US retailers to refuse payment in cash, with plans to roll out similar initiatives elsewhere.
It’s no surprise that regulators and lawmakers around the world have taken a dim view of Facebook’s plans. House Financial Services Committee chair Maxine Waters said the plans should be postponed to give Congress time to review the proposals, while French finance minister Bruno Le Maire said Libra shouldn't be allowed to become a sovereign currency. With Facebook’s poor track record of responding to public concern over privacy, the spread of misinformation and hateful content, policymakers are right to be sceptical.
There’s a risk that if Libra takes off, it will be almost impossible for regulators and governments to rein in. Last year, Mark Zuckerberg was asked to address concerns over disinformation and fake news before an unprecedented panel comprised of committees from five parliaments. He refused to show up.
Libra could pose a particular threat to poorer countries, which face the same problems associated with dollarisation on steroids. If a large section of a country’s population were to use Libra instead of the sovereign currency, central banks could be left powerless to restrain inflation, or unable to stop the rapid conversion of currency into Libra during periods of financial distress.
Ultimately, Libra is just the latest effort by corporations to assert greater control over our money. With cash use increasingly restricted, we’re already almost entirely reliant on a handful of big banks to manage our money and make payments, while Visa and Mastercard have achieved almost total dominance of the card market. Visa now accounts for 98% of debit cards issued in the UK.
An impetus behind the early proliferation of digital currencies was people seeking an alternative to banking systems facing a global crisis of public trust. A poll commissioned by Positive Money found that 66% of people say they don't trust banks to serve the best interests of UK society. But if Libra were to take off, it would amount to handing control from one bastion of corporate power to another.
Instead, we need governments to fill the space created by technological innovation, with digital currencies genuinely created and governed in the public interest.
Regulators will be eager to ensure that Libra is able to redeem tokens for dollars or pounds when customers ask for it. In a speech on Thursday, Mark Carney raised the possibility that the Bank of England would give tech companies like Facebook access to central bank reserves, so that Libra can be backed in full with hard currency.
We should ask why this privilege shouldn’t be extended to ordinary citizens as well. By giving access to a public digital currency, stored securely at the central bank, governments could finally take power away from extractive middlemen like banks and tech companies. The idea is rapidly gaining traction among central banks, with Sweden launching a pilot this year with a view to launching a general-use version as soon as 2021.
This vision outlined in Libra’s white paper is to create ‘better, cheaper and open’ financial services. For this dream to be realised, the power must lie with governments and central banks, not private corporations.