News that Facebook will launch its own global cryptocurrency next year is stirring up fresh controversy, even as the company looks to turn a new leaf on the recent privacy lapses and security failings that have some users—particularly those in the West–skittish.
There’s a lot of time between now and the launch of Facebook’s new digital currency project, but the company met some resistance right out of the gate from U.S. lawmakers still skeptical about its ability to responsibly handle user data. So far, the fact that Facebook is moving aggressively into banking tech isn't exactly assuaging fears.
On Friday, Facebook co-founder Chris Hughes weighed in with his concerns about his former company's digital banking aspirations, spread across the Libra cryptocurrency and Calibra, Facebook's new subsidiary for building Libra-specific software and services.
“If even modestly successful, Libra would hand over much of the control of monetary policy from central banks to these private companies, which also include Visa, Uber, and Vodafone,” Hughes wrote in the Financial Times, calling on regulators worldwide to approach the endeavor with “exhaustive” scrutiny. He elaborated on those ideas on Twitter. Hughes notes that while Facebook was clever to project the appearance of limited power in the project, at the end of the day Libra is Facebook—and its corporate partners—through and through.
Concerningly, Hughes argues it's possible that Libra could actively destabilize struggling economies as their citizens seek to move into euros or dollars and away from local currencies, in turn disempowering central banks in those countries and “making it harder to stimulate the local economy” during an economic crisis. “This currency would insert a powerful new corporate layer of monetary control between central banks and individuals,” Hughes wrote. “Inevitably, these companies will put their private interests— profits and influence —ahead of public ones.”
If recent history in countries like Myanmar is any indication, Facebook is often at its most dangerous outside the West. And those non-Western, developing markets are exactly where Facebook thinks Libra can have the biggest impact. It's not wrong.
“Despite [economic] progress, large swaths of the world's population are still left behind,” Libra's creators write in its white paper (the document outlining the goals and plans of a cryptocurrency project). “1.7 billion adults globally remain outside of the financial system with no access to a traditional bank, even though one billion have a mobile phone and nearly half a billion have internet access.”
Most of the world's unbanked population lives in China or India, with Pakistan and Indonesia also containing large swaths of people without access to banking. In India, the legality of cryptocurrency is currently up in the air and it's not clear that Facebook has yet applied for approval with India's central bank. Regulations in China prohibit most digital currency-related activity, like trading and mining.
“Libra will launch globally,” a Facebook spokesperson told The Daily Beast. “However, it’s important to note that Libra will be distributed by exchanges, wallet services, and other trading platforms that will not be able to do business in the few countries where cryptocurrencies are illegal.” The company added that it has “no plans to offer Calibra in India at this time.”
And there are other, not unrelated concerns. As The Verge rightfully points out, Libra is considerably more centralized than many cryptocurrency projects out there. The project will launch with a consortium of powerful partners and a Switzerland-based nonprofit called the Libra Association to help manage it, but at the end of the day it's an attempt for Facebook to reimagine itself as a payments service—not a global humanitarian gesture. Those partners include Visa, Mastercard, PayPal, Uber, Lyft, a handful of venture capital firms, and a sprinkling of nonprofits.
Unlike volatile cryptocurrencies like Bitcoin, Facebook's Libra is what's known as a “stable coin.” Unlike Bitcoin, a truly decentralized project, Libra won't soar or tank when the speculative winds blow. According to its white paper, Libra will be “backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.”
Beyond Hughes, lawmakers in the U.S. and Europe are rushing to prepare for the advent of Facebook's global banking moonshot, with U.S. Rep. Maxine Waters even calling for a “moratorium” until Congress can examine the plan in depth. “Facebook is already too big and too powerful,” Sen. Sherrod Brown said, cautioning fellow lawmakers on the “risky” cryptocurrency. French Finance Minister Bruno Le Maire declared that regulators should double down on regulating Facebook and German member of the European Parliament Markus Ferber cautioned that Facebook could create a “shadow bank” undermining the world's established financial order.
The whole plan is ambitious, even audacious. Chastened by recent failures in running the world's biggest social network, Facebook appears instead to be attempting to build the world's biggest digital banking system. It's difficult to say if the bold move and the speed with which Facebook plans to move forward will overwhelm lawmakers or inspire a new drive in them to regulate the massive company.