By CCN.com: The New York Times suggests that Mark Zuckerberg is making a terrible move with his Libra cryptocurrency. The social media behemoth is certainly not early, but that doesn’t mean it won’t get a proper taste of the punch.
Matt Stoller, who wrote the piece, goes on to claim:
“The way we structure money and payments is a question for democratic institutions, not technology companies.”
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He argues that some fundamental problems will hold Libra back as it sets a lofty goal of taking the crown as global currency for a new world.
Fallacy One: Organizing Payments Requires Enormous Investment in Compliance
Compliance with who? Government? The Fed? The IRS? Supporters of institutional regulation continue to regurgitate the same old drivel. According to the article:
“Banks pay attention to details, complying with regulations to prevent money-laundering, terrorist financing, tax avoidance and counterfeiting.”
Trouble is, regulation as it stands, is asymmetric. In other words, banks can audit you without an easy way for you to audit them. A simple Google search reveals a laundry list of dirty money flowing through official channels. It’s a raw deal.
Either regulators aren’t doing their job or they’re in on the act. Perhaps a new way to regulate finance is in order, one that actually has some transparency embedded in it. Can anyone say blockchain?
Fallacy Two: The Libra System Introduces Systemic Risk Into the Economy
News flash: There’s already a systemic risk in the economy. The U.S. is approaching a scenario in which it may not be able to pay off just the interest on its debt.
Meanwhile, stocks, bonds, and real-estate are at all-time highs, echoing bubble territory that resembles 2007/2008. That was a crisis that was suspended by nothing other than pure money printing.
Stoller notes that:
“If the Libra system becomes intertwined in our global economy in the way Facebook hopes, we would need to consider a public bailout of a privately managed system.”
You mean kind of like the bailout of Long Term Capital Management in the late 1990’s or the banks during the Global Financial Crisis, huh? U.S. citizens are used to bailing out the corporate sector.
Not that this should be the norm but rather Facebook could potentially test the waters and compete on monetary policy itself with the Fed. A scary thought, perhaps, but no great business ever stayed competitive by standing still.
Fallacy Three: Cross-Border Payments Are Best Handled by Governments
Currency controls almost always lead to oppression. As Stoller argues:
“[Most] nations, especially the United States, use economic sanctions to bar individuals, countries or companies from using our financial system in ways that harm our interests.”
Economic sanctions are a blanket action that usually harms the poor more than enemies of the state. We live in a global financial world now, and governments are falling behind the times.
Facebook, intentionally or otherwise, has created the first digital nation that transcends traditional borders. The majority of Facebook users have never even seen a U.S. dollar, never mind used one.
Using an easily-accessible digital currency just makes sense.
The race for financial supremacy is heating up and appears to be a three-way tussle between nation-states, big tech, and decentralized blockchains. Readers of CCN.com may not like Libra, but chances are that a whole host of Facebook’s 2.6 billion users will. It’s just good business. Don’t be surprised if Libra rapidly scales the CoinMarketCap ranks and steals the show.
Last modified: March 4, 2021 2:36 PM