This summer, Facebook unveiled perhaps its most ambitious project yet — the Libra.
Libra, according to the Libra Association, is a type of cryptocurrency conceived by Facebook to increase “access to financial services and to cheap capital,” especially to those in developing countries who do not have access to banks. It also aims to establish a “global currency and financial infrastructure.”
Libra distinguishes itself from other cryptocurrencies, such as Bitcoin, in that it is also a stablecoin, meaning its value is backed by reserved assets. Typical cryptocurrencies, on the other hand, are only as valuable as their users believe them to be. This causes exchange rates to fluctuate dramatically in short periods of time and leads many cryptocurrencies to be labeled as volatile. In late October, for example, Bitcoin’s value skyrocketed by 40% in a single day. Libra, on the other hand, is “fully backed by a reserve of real assets” comprised of different state-backed currencies (such as dollars, euros, and pounds) and securities, which determine its market value. In other words, when somebody exchanges cash for Libra, the money is added to this reserve. Libra’s organization of assets resembles that of the gold standard, a monetary system used in the US from the 1830s to the early 1970s that directly linked the value of the dollar to physical gold the US possessed at the time.
By tying the value to a real-world asset, rather than letting users determine it, Libra attempts to maintain a value more stable than other cryptocurrencies. This characteristic, however, could subject Libra to more government regulation and scrutiny. For some users these regulations are a major downside, as freedom from government originally made cryptocurrency attractive to many of its users.
On November 21st, a bipartisan group of senators introduced a bill that would classify stablecoins, like Libra, as securities, or financial instruments of monetary value that can be traded. Should the bill pass, the Securities and Exchange Commission would apply “the laws we use to regulate financial securities to this new breed of digital currencies,” as Rep. Lance Gooden, R-Tex., said. Consequently, the Libra Association would have to overcome even more regulatory hurdles to get the cryptocurrency up and running smoothly.
This bill is the latest result of a larger international movement against the Libra Association that started following its announcement. Facebook officials were grilled in July by lawmakers and returned to Capitol Hill again in October for questioning about the intent and potential consequences of Libra. European countries also have their fair share of trepidations about the new stablecoin; in October, France, Italy, and Germany began preparing measures to block the use of Libra in their home countries due to concerns about sovereignty over monetary policy. On top of this, Libra may have some competition with the Federal Reserve in the future. This Tuesday, Chair of Federal Reserve Bank Jerome Powell revealed that the Fed has “a lot of efforts going on” towards the development of a central bank digital currency.
Now, Facebook’s past mishaps with trust are coming back to haunt the company’s future endeavors with unprecedented scrutiny. The public and the federal government are still skeptical of Facebook’s ability to responsibly handle consumer data because of past scandals (like Cambridge Analytica and others) that prompted a $5 billion USD fine this summer from the Federal Trade Commission, the largest the commission has ever issued.
Facebook’s concerning history with user data has caused government officials and members of the public to raise a valid question: how can Facebook be trusted with the financial data of millions if it can’t even be trusted with the basic personal information of Facebook users? Facebook has attempted to stifle these fears by pointing out that the Libra is decentralized and will be controlled by a group of companies, the Libra Association, rather than just Facebook.
However, each of these companies (including Uber, Vodafone, and Spotify) is still a profit-seeking institution that will have a significant amount of power over the finances of millions. Naturally, these companies want more money through a return on investment in the Libra Association. The more people use Libra, the more the companies profit. Considering the massive customer bases of these companies, such as Facebook’s 2.1 billion users, Uber’s 91 million riders, and Vodafone’s 444 million users, Libra has the potential to become huge. Should it take off, it will likely have lasting macroeconomic ramifications that can affect our everyday lives.
The possibility of a corporate oligarchy holding so much control over the global market while having little accountability from the public and the government — unlike national currencies — is worrisome. Facebook’s social media is already too big to be properly regulated and held accountable. Upping the ante by adding other corporations while circumventing substantial government oversight could invite abuse by Facebook and the Libra Association.
The launch of Libra is only a smaller symptom of the corporate world’s infiltration of traditionally government-controlled domains and expansion of control over the public. Facebook regulates the speech of millions. Facebook controls the privacy of millions. Now, Facebook, among others, may control the personal finances of millions. If this trend is left unchecked, corporations will slowly continue to supplant government duties, answering only to themselves.
We can not use Libra here in Indonesia. It will be a good start if it’s available here.