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Facebook’s cryptocurrency is neither Facebook’s nor a cryptocurrency
18 June 2019 12:38
Rumors that Facebook was planning to launch its own currency drew significant attention.
Already under attack from a host of regulators responsible for anything from taxation to counter-terrorism, the social-media behemoth appeared to be further dressing itself in the robes of statehood — understandable, perhaps, given that it counts close to a third of the planet's population as users.
The reality, unveiled today, is rather more sober; Libra, as it is known, is more payment service than currency, and the company is just one of a range of online and financial-service giants taking part.
But antitrust and banking regulators will still be paying close attention.
Libra will be backed by a collection of less-volatile assets, including bank deposits and government securities from the more responsible, traditional fiat currencies such as euros and dollars.
“For new Libra coins to be created, there must be an equivalent purchase of Libra for fiat,” which will be transferred to a distributed reserve to make low-risk investments, according to a policy statement issued by the Geneva-based association that would underpin the new coinage.
That structure makes it less volatile than the likes of Bitcoin, which saw prices soar from just over $5,000 to nearly $20,000 at the end of 2017, before nosediving back again. Libra’s assets have intrinsic value, even if it remains subject to standard foreign-exchange fluctuations.
But it also makes the new asset look less like a currency, and more like a conventional bank account: Users top up their ledger by paying in cash, which can then be transferred or spent. Unlike Jerome Powell or Mario Draghi, Mark Zuckerberg will not be giving dramatic monetary policy statements any time soon.
Perhaps eager to avoid even more antitrust scrutiny, Facebook hopes to share the limelight with as many as 100 partners. It has namechecked financial-services giants including Visa, Mastercard and PayPal, as well as digital specialists such as Vodafone, Uber and Spotify.
The other participants are rather more cautious, with Visa saying in a statement that it was “interested in better understanding the Libra Association, and potentially shaping its development.”
But the clear message is that Libra will feature a broad church of participants. And this might assuage concerns that Facebook could be carving out another corner of the Internet for itself.
Once up and running, Facebook says it will just be one of a number of members with equal status. The other financial and digital participants are unlikely to want to cede too much control to it, even if they are eyeing new partnerships.
But during the startup phase, the initiative and legwork is all Facebook’s. The social-media company's Calibra wallet, also announced today, is the first service set up to use the new asset; more merchants and other services may follow.
Antitrust regulators may have other concerns beyond pure competition. The collection of even more data that might allow Facebook to further refine ad-selling capabilities could catch the eye, as could any signs that the online giant is looking to channel people onto its own services, using its dominance in one segment to guarantee success in another.
But regulatory issues go beyond competition. Financial regulators have already said that any company providing payment services will need to be licensed as such.
Some say rules on financial stability and data guardianship should be extended to the digital sector, with fears that a cyberattack on a large online company could cause a subsequent market panic; others fear anonymous online currencies are a haven for criminal purchases and money laundering.
The initiative is nominally targeted at emerging markets, and the billion-plus people there with access to a cellphone but not a bank account, as well as those seeking to avoid the high foreign-exchange charges of conventional financial institutions.
Yet the high-profile nature of the launch, led by a company that is under regulatory assault on a number of fronts, makes it a likely target for regulators from the US, EU and Switzerland; warning shots have already been fired.
European regulators have already hinted they are eyeing a regulation of virtual currencies. Vulnerable consumers have few protections when buying into new online coin offerings, of which many of the less reputable resemble pyramid schemes if not outright fraud. EU lawmakers want that to change.
With today’s announcement, “Facebook becomes a shadow bank, and that should put regulators on high alert,” said Markus Ferber of the German center-right Christian Socialist party. “Multinational corporations such as Facebook must not be allowed to operate in a regulatory nirvana when introducing virtual currencies.”
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