tldr; Facebook might be building Libra to avoid paying currency fees

Marco Cross
Nov 1 · 7 min read

There are two types of companies in the world that understand perception as reality better than everyone else: first and foremost are communications firms, and the second is Facebook. Although its lack of self-awareness with regard to its own influence is sometimes shocking, both Facebook’s foundational thesis and raison d’être center on the power (and ultimately the actionability) of shared information among its billions of users. Seeking to monetize this influence, Facebook derives a massive share of its revenue from ad sales and placement within the myriad of networks and sub-platforms under its control. In describing Facebook as the modern-day public square where a large portion of public discourse takes place, the pernicious and deeply buried implication is that Facebook is now as vital to society as an electrical utility or a government entity. This vitality puts Facebook on a different level than your run-of-the-mill multibillion dollar multinational conglomerate because both the internal and external dialogues that surround the platform shift from discussions of existence and responsibility (Should this company even be in operation? Can it be regulated? Who is in charge?) to blameless narrative analyses of past events.

While there has been a public call to break up Big Tech in the recent past, notice that even more recent Congressional inquiry into issues like the Cambridge Analytica data breach have simply focused on gathering the finite and faceless details of what happened. Facebook invariably responds by stating a timeline of events and some pre-baked version of the, “We Can’t Know About Everything That Happens On Our Platform” abdication of legal responsibility. Even in European governing bodies where there’s a lot more appetite for regulatory action against big business, no lasting and substantive punitive measures have been enforced. In light of this lapse in oversight, Facebook’s absolutely brazen attitude in the face of Facebook-induced calamity is both rational — as it can get away with protecting itself above all else — yet also just as shocking as its apparent wanton inability to understand its own influence. Would it be all that irrational to assume that Facebook has an ulterior motive when building out a digital currency free of oversight and regulation?

Libra as World Aid Organization

The feel-good campaign for Libra started the second it was introduced to the world. According to Facebook and the Libra Association, Libra is a powerful global force for social good. A rising tide lifts all boats! Freedom from the tyranny of economic oppression at the hands of [insert oppressor]! Collective action will raise us up! The imagery used to describe Libra feels more at home on the website of an international aid organization than that of the faceless entity based in Switzerland that is in control of a new digital currency:

In fact, the very first sentence of the white paper that describes Libra makes a grandiose statement that somehow echoes as both empty and pedestrian in the context of the thousands of Silicon Valley vaporware firms that will cure cancer, end hunger, or change medical testing forever:

Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people.

While there is tremendous nobility in tackling global economic instability, there is utter shame in pitching a banking solution as a means of lifting a billion destitute people out of poverty. The shame is exponentially deeper and it quickly becomes utterly revolting when coupled with the fact that the Facebook-owned Calibra, a digital wallet which is the sole mechanism through which Libra can be stored and over which the Libra Association has no control, is far less circumspect and a lot more inadvertently truthful when advertising itself:

That purple text bubble asks a potent and revealing question.

An Accounting

As detailed in their just-released 2019Q3 earnings report, Facebook made $17.3b USD from ad sales in the first three quarters of 2019 which represented a 28% year-on-year increase over the same three quarters of 2018.

In addition, Facebook controls about 20% of global online advertising spend and is second only to Google; increasing competition from Amazon and other niche players in the ad market are slowly siphoning market share off Facebook and the other entrenched ad platforms.

Say, for example, that Philipa buys an ad in France and Facebook wants to transfer that revenue into the USA. At some point, Facebook must pay a currency conversion fee to exchange that money into dollars. As of January 1 of 2018, Facebook reports income in the country within which that income was generated instead of through its corporate holding company based in Dublin, Ireland. While this solves a lot of global complaints about Facebook using Ireland as a tax haven and while this move enhances liquidity in each of Facebook’s domestic subsidiaries, the reporting shift increases its potential conversion liability dramatically. Conversion fees for big businesses are not published and Facebook almost certainly pays far less than the 3–4% fees that are incurred when the average bear does business across currency borders.

The following is textbook business strategy. In the face of declining market share, companies have a few good options to win back lost customers: new ideas, (ironically in this case) increased awareness spending i.e. advertising, or cost reduction. How can Facebook reduce costs? It can push currency conversion fees onto the consumer, eliminate them all together, or minimize them to such a degree that they are effectively a footnote in their quarterly reporting. How does it do that? By setting a new global standard for currency while strongly suggesting- or mandating- that Facebook ads are paid for using this new global currency. Sound familiar? It should sound like Libra.

For the purpose of discussion, let’s assume that Facebook needs to shift 5% of its ad revenue across borders in some way over the course of the year and, given its size, Facebook pays a 1.5% fee on those transfers. To be clear: this is an estimate. Based on 2018’s reported revenue, that savings would net out to $27.5 million dollars. While this is a small portion of Facebook’s overall revenue, this figure is also fairly conservative. A bit further down in the same yearly report, Facebook states that the “General and Administrative” costs of obtaining its 2018 revenue totaled $976m; currency conversion costs as well as other discrete costs that would benefit from a reduction in monetary penalties stemming from high levels of banking complexity are also included under that line item.

You Made it This Far: Closing Thoughts

Does Facebook have the intestinal fortitude to make the Libra scheme work? Yes and no. Facebook pulled in development and launch partners from throughout industry to bolster its bona fides. While a lot of these companies dropped their support once global governments began screaming “WTF!” in unison, there are still many who are attached including Uber, Lyft, and the non-profit microlending platform Kiva. Each company deals with many hundreds of thousands of international transactions on a near-daily basis. For them, widespread use of this type of stable cryptocurrency would represent an operational windfall. By inviting these companies on board and requiring that they contribute to the cost of developing and maintaining Libra, Facebook effectively reduced its costs down to as far as possible. Even the Calibra logo is a pretty blatant knock-off of the logo of another fintech start-up called Current. At the outset, Facebook’s risk was highly compartmentalized. Of course, this all changed once everything blew up in Libraville and it became a massive public relations liability.

Facebook- and specifically Mark Zuckerberg- also benefit from the shift in tone that was mentioned earlier in the article. Facebook is now large enough that it can tilt the rotation of the Earth; it can stay out late, do what it wants, and sleep in a little later than everyone else. It also seems to have the (un)intentional ability to simply turn off its empathy and self-analysis chips for any length of time. The public hearings about Libra, Cambridge Analytica, Russian election interference, and Facebook’s role in enabling genocide highlight this well. Functionally, this means that the discourse between Facebook and government regulators sounds like that of nation-states hashing out a trade agreement at the United Nations; it’s never a question of who is at fault or why it happened but rather a somber recapitulation of what happened. This is always followed by a muted assurance that someone who is somewhere will, at some time in the future, do something different which may or may not be better or worse.

For a company that, on the surface, claims to want to help the poorest among us, that is a problem.

Marco Cross

Written by

Like a shark, I die if I stop moving (and also my eyes swivel 270 degrees).

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