The bomb that weighs a Libra
Facebook’s cryptocurrency comes with an entire army.
It has been all over the news. Much was written about Facebook’s new subsidiary Calibra and the newly created Libra association with heavy weight founding members Visa, Mastercard, Coinbase, Spotify, and many others. This setup will launch a new crypto currency that promises, to the very least, shake the finance world.
It is undeniable that if you consider the most recent history of Facebook, this is definitely not the company you want to trust your money with. But, to build their Libra, Facebook called up a lot of friends. And these are very interesting friends indeed. The consortium gathered around Libra is, in my opinion, the most notable aspect of Libra’s announcement. Libra is not a technological breakthrough. Libra is not a better crypto currency. Libra is not the solution for everything that is wrong with the financial system. Libra is, and most brilliantly, an ecosystem with buyers (lots of them), means of payment (simple to use and already massively deployed) and things to buy (nice things).
Libra is, and most brilliantly, an ecosystem with buyers (lots of them), means of payment (simple to use and already massively deployed) and things to buy (nice things).
With this in mind, it is probably more accurate to look at Libra as a platform and less as yet another crypto currency. A platform for which there will be a lot of incentive to join. Content creators, service providers, and application developers will continue to search for Facebook’s, Instagram’s, and Whatsapp’s immense user base offering more and more nice things. Payment platforms will provide easy to use, seamless integrations for payment methods, points of sale, and buyer/merchant protection. Buyers will be… buyers. And this is what makes Libra different from other cryptocurrencies. At least for now. In fact, a fundamental difference between Libra and Bitcoin is that it's “how/where to use” will be immediately obvious. For Bitcoin and other cryptocurrencies, quotidian usage has always been quite a pain and only in some geographies you can see actual adoption of crypto as a method of payment.
Another interesting thing is how Libra will develop in terms of monetary policy. At the moment, the consortium is saying that Libra will be a stable coin, which means that each Libra will directly correspond to a value reserved in regulated traditional assets. This, however, might change in the future which would configure an entire new scenario both in terms of the value of Libra both in terms of how it would relate with regulators, states, and banks. It is hard to predict the implications of a potentially non-state currency, governed by private organisations, with billions of daily users even if, at the moment, the numbers involved are still tremendously small (some details are still missing). In terms of monetary policy, It is true that Facebook could, for instance, start paying their providers in Libra, which could be a way of creating Libra. If sufficiently disseminated, Libra could become an acceptable payment for influencers, employees, contractors, etc. while companies advertising on Facebook would still pay in traditional currencies adding huge amounts to Libra’s reserve or, simply, Facebook’s pockets. The implications of this are also unclear and, in my opinion, worth discussing in depth in the future.
However, it is important to remember that it is still a private consortium and economical interests of each of its members should be taken into consideration. Note that no single entity, person, or group of people in these organisations was ever elected or appointed through any kind of democratic process.
Alongside the arguably libertarian position of early adopters and advocates of cryptocurrencies, Libra also positions itself as a decentralised system. The consortium gives all of its participants a vote, which should prevent centralised decision. This is positive and, given the composition of the initial consortium, may actually yield sufficient trust in the system to be used by many. Facebook is explicitly working on conveying this specific message. However, it is important to remember that it is still a private consortium and economical interests of each of its members should be taken into consideration. Note that no single entity, person, or group of people in these organisations was ever elected or appointed through any kind of democratic process. In this context, it will be very interesting to follow the development of Libra, its consortium and all others that are likely to emerge and follow the trend.
It is important to notice that the initial positioning of Libra as a stable coin maintains a clear connection with the established monetary system and its regulators. This is a clear difference between Libra (and other stable coins) and other cryptocurrencies. These are actually, arguably, non-governmental or even anti-governmental in nature. Interestingly, this conflict between governmental and central bank power over the monetary system and a completely decentralised approach advocated by crypto enthusiasts lies on a paradoxal argument. Freedom from regulation, bank control, or even governmental control as claimed and aimed by many (and often for good reason) can only be a reality given a strong majority of acceptance and usage of cryptocurrency. This majority is the government. The simple fact that we accept to live as citizens of a country is the strongest consensus we have as humans and as a society. The fact that we elect our representatives in an organised way and convey them specific powers such as the monopoly of violence, monetary system control, and so on is most probably the closest we can get of a generalised agreement on how we should live as a society. Trying to decouple the monetary system from this generalised consensus without involving such consensus in the move is, to say the least, awkward. It will be fascinating to see how these tensions will be solved, which players will enter the scene, and also how the populations will react to a plurality of solutions.
The simple fact that we accept to live as citizens of a country is the strongest consensus we have as humans and as a society.
In the meantime, the implications of the announcement and the future launch of Libra go, however, beyond the potential success of Libra or any of these approaches themselves. The discussion it sparked and the generated attention around cryptocurrencies is definitely beneficial to the society as a whole. It is undeniable how money has, for some time now, become increasingly digital. In China, for instance, digital payments are a commonplace and cashless trends are on the rise. The question remains what will, ultimately, be the role of cryptocurrencies and its impact in the global economy. Hopefully, these new approaches will help positively change how people interact with money. In fact, let us hope that all the challenges arising from these disruptive technologies and solutions help the world trim our financial systems and take them to the next level and towards a better society for all.
