How Libra Should Have Launched
By Rehana Nathoo on ALTCOIN MAGAZINE
The internet is abuzz with conjecture, skepticism, and elation around the launch of Libra — a vision for a new global currency. According to their website:
“Libra is a global, digitally native, reserve-backed cryptocurrency built on the foundation of blockchain technology. People will be able to send, receive, spend, and secure their money, enabling a more inclusive global financial system.”
Facebook’s role in championing this new “low-volatility cryptocurrency” has dominated the conversation, with a slew of articles suggesting that data-weary customers should steer clear of anything that involves the social media giant.
But a primarily derisive and weary conversation around Libra is a monster of its own making.
In the same way that we have used — mistakenly — technology as a signpost for inherently positive impact, so too should we stay away from equating cryptocurrency/alternative currency/shared currency with financial inclusion.
The issue of the underbanked is not a straightforward problem of accessible, regulated, international currency. Yes, fees based on sending and storing money are particularly discriminatory to those who can least afford it. And the promise of addressing a fee-free/fee-moderate form of international banking through Libra could be game-changing.
But to equate this effort with a crusade to build financial inclusion is inauthentic and misleading. It’s also an unnecessary distraction, given how promising Libra’s actual innovation is.
Here’s How Libra Should Have Launched:
1. Steer Clear Of The Impact-Washing
The Libra homepage is filled with stats and figures around the systemic problem of the underbanked — a subset of households/individuals that manage their finances through cash transactions (or cash-like instruments) instead of through financial institutions.
The pervasive problem of the underbanked has a deep and complicated history within financial inclusion. A lack of affordable access to financial products usually points to a more systemic challenge of weak, underdeveloped, or corrupt local monetary and regulatory systems. Here are several key characteristics of the “underbanked”:
- Predominantly low income — which makes meeting bank minimums difficult and prohibitive, particularly once you account for fees related to bank balance minimums.
- Lack of access to credit — which in turn creates ongoing inaccessibility to loans, subordinated instruments, or credit-building financial products.
- A strong connection with the informal economy — which includes a range of economic activities and jobs that are not regulated or protected by a federal or local authority. Working through a predominantly cash-based system, the informal economy is sometimes the only way for workers to generate any income. The exclusive cash-based nature also creates dependencies on predatory loan providers that relegate these workers to a life of continued indebtedness (thanks to outrageous interest rates, illegal loan terms, etc.)
- Continued difficulty in transferring assets from the innovative mobile banking system into hard, usable currency. (Mobile payments have been a game-changing innovation to create access to financial products, but as witnessed by M-Pesa’s success in Kenya vs. struggle in South Africa, for example, we know that no two local markets are the same.)
Libra’s White Paper lays out a problem statement for financial inclusion that offers several vague connections between the global vision of financial inclusion and what Libra can offer. Here are a couple:
- “…distributed governance, which ensures that no single entity controls the network; open access, which allows anybody with an internet connection to participate; and security through cryptography, which protects the integrity of funds.” That’s fine in a country where Rule of Law is upheld. In the places where most of the underbanked live, corrupt financial systems and fragile monetary regulation are made worse by physical decentralization — locale-specific rules that prohibit how people can access their own money, coupled with the ongoing threat of asset seizure. Decentralizing technological governance doesn’t do anything to stabilize actual governance.
- “…access to financial services and to cheap capital.” In what way? New financial institutions that eradicate traditional forms of credit? Or scalable microfinance/micropayment-backed loans? Or even designing new wealth-building products (of which cash is often not)?
- “…control the fruit of their legal labor.” Will Libra have a punitive mechanism for loan sharks? How about people that come into someone’s home and shut off the electricity required to study, cook, and see in exchange for a whole month’s salary? Will this new cryptocurrency suddenly ensure that wages aren’t garnished by thugs and illegal employers?
- “We believe that global, open, instant, and low-cost movement of money will create immense economic opportunity.” Great! New jobs? Job-based skills-training? Employer-based services and programs that ensure employee health and productivity?
- “…a global currency and financial infrastructure should be designed and governed as a public good.” Finally! Could you provide a list of all of the sovereign governments that have signed on to make their monetary tools and policies part of this global good pledge? Are the International Monetary Fund, World Bank Group or any of the UN Agencies (some of whom have been working on trying to find a cohesive approach to shared fiscal principles for 75+ years) tasked with international policy-setting and/or tool development involved? I hear the global community is actually having trouble with maintaining a single currency for a handful of European countries …
Of the ~6 sub-goals put forward in the white paper, one is actually within Libra’s remit: addressing the prohibitive cost of the movement of money. But fee mitigation and currency conversion are hardly the single most difficult consideration in the life of a worker who can’t generate a living wage, has no access to savings, and can’t trust local, state, or federal governments to protect the income generated by his/her livelihood.
Using the words “social impact” to describe what you’re doing and why you’re doing it bears an incredible responsibility. It is not there to make your infographic shine. Intention matters. If Libra had side-stepped the superficial impact-washing and stayed focused on the problem it was designed to solve, we might not see the flurry of eye-rolling articles suggesting that this is simply a ploy for further Facebook domination. We could - instead - have a concrete conversation around the difficulty of living an interconnected world that doesn’t have an interconnected currency.
Double-Down On The Association Model A.K.A This Is Not Facebook’s Project
Speaking of Facebook, let’s talk about what Libra is not. It is not Facebook’s cryptocurrency project. Libra is an association with 29 separate members that make up the wide-reaching list of Founding Partners. Association members need to have a minimum financial stake in the network, made possible through purchasing Libra tokens — “each $10 million investment entitles one vote in the council, subject to a cap.” It doesn’t even offer proportional investment to voting power — “… a single Founding Member can only be represented by the greater of one vote or 1 percent of the total votes in the council.”
This is not “Facebook’s cryptocurrency.”
Yes, several articles point to the incubation of Libra in Facebook-adjacent offices with Facebook capital/human resources, but when the ink dried on the partnership agreements, Facebook was — and is— one Association Member.
In the context of Facebook, we should be focused on the social media giant’s creation of a wallet-like platform, Calibra, which will store and send the new Libra coin. Calibra is a subsidiary of Libra. All of the concerns voiced about the safety of user data through Calibra — particularly through integration with services like Facebook Messenger and WhatsApp — are fair game, especially given the firm’s data-privacy track-record.
But that has nothing to do with what the actual coin offering can and will do.
Controlling this narrative should have been an (if not the) crucial element of Libra’s launch. Libra managed to bring organizations like Kiva and Women’s World Banking to the table — institutions with decades of on-the-ground experience in financial inclusion. Institutions that do not take partnerships lightly, and have worked tirelessly to remain true to their mission, despite the allure of impact-friendly AUM over the last 10 years, that could have sent them in a million different directions. A mission inextricably linked with serving the end-beneficiary.
Those partnerships offer all the legitimacy in the world. And yet inattentive narrative-control allowed Facebook to dominate the conversation. Sure, it’s an impossible task when an organization with Facebook’s PR-burden is involved. But perhaps spending less time on an inauthentic social impact narrative and more time on championing the learnings from decades-old doers — and using their presence and power to paint the realm of possibility — would have been a much better way to go.
Integrate Your Social Impact Experts At The Board Level, Not Through A Toothless Advisory Group
Massive kudos to Libra for thoughtful Board organization and oversight. It’s hard (and sometimes boring) to think about this early on — and especially to integrate this thinking into your launch. The restriction on voting shares, appointment processes to the Council and other management bodies, and overall delineation of roles and responsibilities is an illustrative example in governance transparency.
What’s not so exciting, is where the actual “impact” is found - both at an expert level and a reporting level. In addition to the actual Libra Association Council (where financial stakeholders are present), and the Libra Association Board (where the decision-makers are present) is the Libra Social Impact Advisory Board. It’s exactly what it says — an “advisory” board. It has the following responsibilities (among others — see here for the full list):
- Approve grant/funding recommendations
- Approve social impact partners as eligible to become nodes under delegation from Founding Members.
- Measuring and reporting on social impact, developing new social-impact initiatives, implementing learnings from grantees across the entire Libra ecosystem, and serving as convening party to bring other SIPs to join the association
Measurement and reporting — on the actual impact that is supposedly core to the organization’s mission — is relegated to a second-tier body of “social impact partners or academics.” Supposedly, lessons learned (across grantees and impact investees) will be aggregated and shared by this body.
But nowhere is their evidence of action-oriented reporting to the Board as to whether the impact is actually being achieved. Nowhere is there reference to measures or actions taken if impact is under met, missed, or misused. Nowhere is there reference to any impact frameworks to actually do the reporting, even though we have a plethora of resources out there already designed to track this. Nowhere is there evidence that impact performance can or will affect any management, partnership or investment changes. Nowhere is there evidence that impact measurement experts and partners will exist at an actual decision-making level. If they’re lucky, they’ll get a nice badge that says “SIP.”
An advisory board is not good enough. If the goal of Libra is actually social impact, successful impact investing tells us you have to deliver on that goal. Those impact experts need to be in a decision-making capacity at the Board Level. There’s no way around this.
The three core characteristics of impact investing are the intention, measurement, and transparency. On the intention, Libra’s actual ability to deliver on its impact promise is vague at best, and a perpetrator of impact-washing at worst. On measurement, tracking impact is referenced but actionable reporting lives in a toothless black box. And transparency? Only time will tell if we hear how the delivery of impact is really going, although, with unclear practices in place around intention and measurement, it doesn’t bode well.
This is not a Libra teardown. To be able to move the needle on a common, fungible, fee-free international currency would mean amazing things for consumers around the world. But invoking tools and strategies within the realm of social impact has very real implications for actually moving the needle on a set of pervasive, mind-numbingly challenging problems. We are in an epoch where the tolerance for impact-washing and labeling is at an all-time low.
There’s still time to turn this around, by enhancing the organization’s actual mission (authentically) and leveraging existing partners and thinking in the areas it’s not best suited. By aiming for the impact goalpost - not trying to convince the world that this is its raison d’etre. That combination of innovation, domain expertise, and humility could actually make a dent in systemic financial inclusion.
For a much more technical review of Libra outside of the impact universe, check out FT Alphaville’s deep-dive series.