Are Cryptocurrencies the First Crack in the Wall to Regulate Facebook?

Yves here. It’s hard to convey how incoherent and contradictory Facebook’s claims about its new payments pipe dream, Libra, are. The only reason I can fathom for Facebook touting such a obviously barmy idea was in this era of never-gonna-make-any-money unicorn darlings like Uber was that they figured there were enough true believers to give its flagging stock a desperately-sought-after shot of adrenaline.

I’m way overdue for comments of my own, but FT Alphaville has been all over Libra. An intro by Colin Smith and Izabella Kaminska:

This is just one of a series of Alphaville posts on Libra coin, which we are calling Breaking the Zuck Buck, in which we will seek to show how nonsensical, pointless, stupid, risky, badly thought-out and blockchainless the whole thing is.

Marshall Auerback contends in his latest article that with Libra, Facebook may have triggered what it has most keenly sought to avoid, regulatory oversight. A DC insider called me the day Facebook presented its concept and said that “everyone” in government hated it, that he’d seldom seen so much unanimity.

By Marshall Auerback is a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute

As if controlling a social media monopoly were not enough, Facebook has decided to get into the digital currency business. It announced plans to introduce its new cryptocurrency, called “Libra,” by next year. In telegraphing its plans, Facebook has expressed the hope that it would create “the foundation for a new financial system not controlled by today’s power brokers on Wall Street or central banks,” write Mike Isaac and Nathaniel Popper of the New York Times. A lofty goal to be sure, although when unpacking the details of Facebook’s digital currency aspirations, they seem ill-conceived and, much like Icarus flying too close to the sun, will almost certainly hasten the company’s downfall, or finally motivate a swath of government agencies to properly regulate it, which of course may amount to the same thing.

Already, the Bank for International Settlements (BIS), the Financial Stability Board (an international body that monitors and makes recommendations about the global financial system), the U.S. Federal Reserve and the UK’s Financial Conduct Authority are all signaling displeasure with Facebook’s proposed digital currency launch. Unlike other regulatory agencies, it’s hardly likely they’ll be pussyfooting around the issue as the DOJ’s antitrust has done. If left unsatisfied, they will shut it down, but, more importantly, this might break the dam in terms of D.C.’s diffidence in regulating Facebook’s other activities.

Perhaps the flaccid non-interventionist response of the federal government since the dawn of the internet has led Facebook’s CEO, Mark Zuckerberg, to assume that anything is fair game for the company. But central banks endure through the process of putting the squeeze on the rest of society. It’s one thing to create a newfangled web-based social community and avoid the regulatory strictures of, say, the Federal Communications Commission (FCC). Trying to muscle in on something as basic as money itself, without triggering a regulatory response (especially given the controversy Facebook has started to generate in its existing business activities), is naive in the extreme.

In addition to the mounting regulatory scrutiny Libra is bound to invite, the company’s decision to launch a new global financial system predicated on cryptocurrencies is almost certain to revive a longstanding economic debate on the nature of money itself. Ironically, the swarming crypto industry cheering on Facebook may end up seeing themselves regulated or crushed by the same rules framework that is ultimately enacted for Facebook.

Is money something historically that is a purely private sector creation, designed to facilitate frictionless trade, ultimately displacing barter in the process? Or is it a creature of the state, which alone determines what it will use or accept as money in its own transactions, and which therefore mandates what is acceptable as the principal unit of account by virtue of the government’s monopolization of money creation?

One way to conceive of money is as an IOU that is deemed acceptable via two consenting private sector parties. The difficulty, as the economist Hyman Minsky has emphasized, is in getting it accepted. The “state theory of money” suggests that this is done via taxation, whereby the state designates the unit of account in which all citizens must pay their respective tax liabilities, thereby creating both demand and value for what is essentially a “fiat” instrument. Those of a libertarian, private markets orientation, on the other hand, conceive of money as a store of intrinsic value that has historically arisen independent of state sanction, which in the past derived its value through some sort of tangible backing of real assets, normally gold bullion.

Facebook’s gambit appears to be a weird amalgam of the two competing theories. The company is making a calculation that a large multinational corporation with captive users throughout the globe gives Facebook the critical mass and captive audience designed to create a viable “digital IOU” whose usage it can impose/enforce among its captive user base. It still plans to use the blockchain technology, now prevalent among other cryptocurrencies such as Bitcoin. (One of the purported virtues of this technology is that it tends to restrict the cryptocurrency’s supply and, in so doing, establishes a scarcity value comparable to what existed under a gold standard system.)

What distinguishes Facebook’s proposal from other cryptocurrencies, however, is that the company is going to back Libra explicitly via government-issued currencies—dollars, euros—as well as “bank deposits and short-term government securities in currencies from stable and reputable central banks.” Of course, this begs the question as to the whole point of the exercise. At least with Bitcoin, one could make the libertarian case that it genuinely bypasses the pre-existing bank-dominated monetary system, as well as providing viable security safeguards through the blockchain technology, which therefore makes it unlikely to be prone to the privacy abuses that are now so prevalent at Facebook.

In the case of Facebook, the proposed linkages to existing state-backed instruments make it virtually impossible to conceive of a means whereby Libra can do the same. How does Facebook potentially bypass central banks, bank regulators and existing currency systems when it is backed by these very same government-issued currencies? Even more anomalous, the company is provisionally partnering with entities firmly locked into the existing payments system, such as Visa or MasterCard. It has even suggested that banks are welcome to join the “Libra Association”  if they wish to do so. What’s the point, and what advantages would these companies secure?

Ultimately, this makes Libra look like just another link in a daisy chain of credit, the “moneyness” of its proposed cryptocurrency effectively established by its backing by other pre-existing monetary instruments. So why bother? Just because the label says Facebook (or Libra)? In case Mark Zuckerberg hasn’t noticed, Facebook isn’t quite the reputable brand it was a few years ago, and companies like PayPal already provide many of the types of services purportedly on offer from Libra (already operating under regulatory sanctions from the existing monetary authorities).

There’s also a certain kind of hubristic quality to Libra: Zuckerberg’s company is already under significant political and regulatory attack. Facebook’s CEO probably thinks (not unfairly) that Congress doesn’t have a good way of regulating his business via old 20th-century antitrust instruments (especially as most of Congress seemed utterly clueless when it came to understanding Facebook’s business model).

If Facebook introduces a cryptocurrency that in effect seeks to privatize or displace existing central bank functions, it is inevitable that the company will face a ton of regulatory oversight crashing down on it. As Chris Hughes of the Financial Times argues:

Let us imagine that Libra works as planned. Hundreds of millions of people around the world will be able to send money across borders as easily as they send a text message. The Libra Association’s goals specifically say that ability will encourage ‘decentralised forms of governance’. In other words, Libra will disrupt and weaken nation states by enabling people to move out of unstable local currencies and into a currency denominated in dollars and euros and managed by corporations.

Why on earth would any central bank allow this potential systemic risk to be introduced, to say nothing of the money-laundering opportunities  facilitated by Libra? We already have a “too big to fail” issue with regard to large multinational banks, due to the crucial role they play in preserving the global payments system. Do we want to extend this guarantee to Facebook as well? Social media might be a newfangled type of business that doesn’t lend itself easily to the regulatory strictures of the Sherman Act, but money is precisely the kind of thing guaranteed to bring the Federal Reserve, the IRS, and several other regulatory bodies crashing down on Facebook, given this systemic risk.

There is already evidence that this is occurring: the BIS, the central bankers’ central bank that stands at the apex of global monetary officialdom, has already warned that Libra would attract regulatory scrutiny “to protect customers and prevent… [Facebook] from facilitating money laundering.” Equally significantly, Hyun Song Shin, economic adviser and head of research at BIS, suggested that the central banks themselves could easily appropriate many of the existing features of digital currencies as the world’s central banks update their own payment systems. Ironically, Facebook’s gambit could well catalyze these efforts.

Ultimately, I suspect, as Cornell Law Professor Robert Hockett has argued, that cryptocurrencies “will soon go the way of the ‘wildcat’ banknotes of the mid-19th century.” Why? Because the state has too much at risk here, and there is no incentive for it to lose its monopolist control over money. In fact, it was the failure of the state to assert is primacy over various private sector creations of money that engendered much of the systemic instability of the 19th century (in spite of the irrational and ahistorical nostalgia today for cryptocurrencies as a 21st-century private sector, “hard money” alternative to state-backed currencies). Much like the sun, the BIS is gently applying threats of “regulatory heat,” but today’s modern-day Icarus, Mark Zuckerberg, seems determined to fly ever closer, paying little heed to the risks.

The BIS, the Federal Reserve, the ECB, and other global monetary authorities and regulators will, as Hockett suggests, likely appropriate much of the technology now in place, and drive these private sector digital competitors out of existence. These institutions are nearing the end of a massive, multi-year regulatory enactment process designed to stabilize the industrialized world after the 2008 financial crisis. They are also busy updating their payments system in order to incorporate many of the technological features of cryptocurrencies. Facebook may be a tech giant, but as far as the global monetary authorities go, Libra would represent nothing more than another regulatory target, which would operate under their umbrella, and according to their rules, not the private whims of Mark Zuckerberg.

After the fiasco of the 2016 election, very few tears will be shed if Facebook too ends up as a casualty. Our global monetary authorities barely survived the regulatory wreckages exposed by the global financial crisis in 2008. Antitrust bodies have been similarly delinquent in their dealings with Big Tech. But failure to respond forcefully here to the latest regulatory challenge posed by Facebook risks turning out global economy into something that would reflect the worst pathologies of both Wall Street and Silicon Valley.

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37 comments

  1. flora

    Very good post. Forbearance toward youthful hubris has its limits. Facebook is about to discover acceptance of its ‘disruptive’ corporate action has always been provisional.

    Reply
    1. skippy

      Its just so M-C-M to M-M as a means to enrich a small group with the assist of eager sundry investor “sentiment” [waves at day traders seeking quick yield] under the auspices of Gates frictionless capitalism – see Apple I.e. they started the previous and then evolved to the later to facilitate income – balance sheet flows as it reflects on credit ratings and conversely equity buffing et la by which the upper tier can translate to profit taking today.

      So as FB matures, by dint of its customer base, and all that has happened during that experiment the slowing of growth dynamics dictate it needs to seek alternative means to embellish its balance sheet so it can keep burnishing equities.

      I mean anyone not compliant to this dominate perspective will get treated like sinners by the market and suffer the consequence’s, its baked in.

      Reply
        1. skippy

          This is and always has been a economics and financial blog focused on astute readership, as such, pleas to avoid “basic” economic nomenclature without reference to the substance of the offending comment is dubious at best.

          Had you been around some years ago your suggestion would have necessitated being leveled at just about everyone commenting.

          Now if you have any quires about my short hand I would be glad to assist.

          Long live the 7’s YS.

          Reply
    2. Ignacio

      +1
      The Icarus metaphor applies beautifully to Zuckerberg insane ambitions. The man is rushing ahead to nowhere. If those that have been sleeping on the job start figthing internet monopolies it would be quite a good outcome from Libra.

      Reply
    3. lyman alpha blob

      Exactly. When Zuckerberg started floating the idea of a presidential run, he got hauled before Congress and later blamed for electing Trump. I don’t believe that the latter is accurate, but any stick to beat a dog I suppose.

      Money is not just a means of exchange, it’s a weapon. The Douche Mark needs to be killed with fire, and if it takes the whole company with it, so much the better for the rest of us.

      Reply
  2. Summer

    When you look at it as being more about the regulation of currencies instead of only about “Facebook’s new currency,” one has to look at the entities partnering with FB on this with laser focus as well. Will that be part II?

    Reply
    1. Susan the other`

      Yes. Because all FB ever had was access to zillions of users. That access is clearly important to anyone who is equally interested in establishing exo-system, or maybe “hyper-system” exchange payments. So, prolly the big banks for one, who early on began looking not so much at Bitcoin but at the blockchain as a way to reach more and more people while maintaining security. So that’s not panning out so well, mostly because blockchain is expensive and slow. But access to all those FB users is power itself in this world.

      Reply
      1. Yves Smith Post author

        *Sigh*

        I know your remark reflects the press amplifying Facebook bafflegab, but is it still frustrating to see it picked up and repeated. Libra isn’t blockchain. The description of what Libra is is totally contradictory. It literally make no sense if you re a bank person.

        And I don’t see the benefit of “access to zillions of users”. WalMart has long had that, physical plant too, and it is already handling a zillion transactions, which gives it a natural point of entry. Please tell me how far it has gotten in banking. Answer: not.

        Walmart has begun offering banking services designed for bargain shoppers that seek a checking account with lots of features and low fees. Walmart itself is not a bank, but the GoBank account is only available through Walmart, with banking services provided through Green Dot Bank.

        https://www.thebalance.com/gobank-review-walmart-bank-services-315129

        WalMart has a large and well-regarded in house counsel’s office, BTW. They know better than to make stuff up the way Facebook is trying to do now. One of my DC colleagues who has been involved in financial legislation speculated that Zuckerberg is such an autocrat and megalomaniac that when he came up with this grab bag of finance fads, his staff was too terrorized of him to tell him it’s a non-starter and instead ran around to somehow make it work. The question is why Sheryl Sandberg, who worked in Treasury under Summers, didn’t prevent this from being launched. My contact thought she must not have wanted to cross Zuck and the regulators would do the dirty work she didn’t want to do.

        Reply
        1. Oregoncharles

          OTOH, State Farm Insurance IS (technically, has) a bank, using its many agencies as branches. They seem to sell mainly savings vehicles like CDs and Money Markets. I suspect it’s being used to finance the insurance co., but it’s insured so I don’t actually care. The rates are quite good, for the present climate.

          I don’t think I understand the Libra proposal, possibly because it’s incoherent, but my wife’s recent experience finding a better place for her sister’s money seems relevant. State Farm was not the first attempt; the best CD rates are at certain online banks (low overhead, I suppose). Some are none too reputable, but some are major companies. But when she tried to buy a CD, it turned into a 2-day nightmare. The biggest hurdle turns out to bethe anti-money laundering laws, and stringent requirements for identification – rather difficult at a distance. I’m not sure who those products are for; probably people with straightforward identities (for instance, no name changes) and plenty of help with the details.

          The same job at State Farm was no problem, because it’s face to face and because the agent already knows us. So that’s where the investment winds up.

          I deduce that those hurdles are precisely what Libra will run up against. And despite its theory, FB does not have real face-to-face identities; in fact it’s full of “sock-puppets.”

          Reply
          1. Yves Smith Post author

            The legal line is between commerce and banking. State Farm having a bank does not change that picture. But yes, you are right, the “know your customer” procedures are only getting worse over time. But I am still surprised that you found it so hard to buy a CD.

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        2. Susan the other`

          Interesting about Zuckerberg – he did look like the cat who swallowed the canary in his congressional testimony. Actually the thing I was thinking was not so much the vampire squid image of the banksters exploiting everything with a pulse as much as the enormous capacity of the internet to handle transactions world wide. The thing in the back of my mind with that comment was a blurb about 2 years ago on Africa. How with very little infrastructure people can manage to get a market going and do their transactions all on cell phones. It looked like one giant flea market to me and my gut reaction was that this was no way to create a market. A market in my mind should be controlled and focused on the social benefits commerce can bring. And etc. So my disconnect in all this finance by FB is not so much that Zuck is trying to create a credit system that he controls (which is what this looks like) but that it will, by its very nature, be out of control and pointless in no time. Sorry, didn’t mean to sound too glib.

          Reply
        3. milesc

          “Libra isn’t blockchain” – yes and no. Mostly yes. The validators will process transactions in blocks – the consensus algorithm requires it – but the results (valid transactions) will effectively update a single (distributed) data structure, sans blocks.

          As an aside, Libra is a protocol – there is undoubtedly a (distant future) vision for putting/representing other things on Libra, in addition to the Libra coin.

          I could see Libra being more successful with FB users (through FB’s KYC/AML compliant Calibra wallet) than banking services offered by Walmart. I can imagine loading money onto my WhatsApp or Messenger wallet, having the balance displayed in Libra and local currency, and spending from there occasionally. Particularly if there’s tight integration with other apps, like Uber. It would be another quick and easier way to pay. I can’t imagine wanting to open another bank account; Walmart would have to make an insanely compelling offer. It’s funny, we have almost-instant bank transfers here in the UK, but using online banking (even online banking apps) to pay people already feels _slow and awkward_ compared to modern e-money based systems (apps like Revolut). Revolut lets me load GBP, exchange between currencies at spot, and then spend abroad in the local currency using a Visa or Mastercard. I could see a Libra based alternative (noting that Visa or Mastercard are already on-board), or apps like Revolut adding Libra. More likely the main target markets are actually those with far fewer money transfer options.

          The bigger aims – truly decentralised governance, transitioning from ‘permissioned’ to ‘permissionless’, etc – do seem far-fetched, perhaps impossible (FB has given Libra 5 years to solve as-yet-unsolved ‘blockchain’ issues!), but kudos to them for making all the right noises at least; particularly launching Libra through an independent not-for-profit entity in Geneva and limiting its own voting rights, and the voting rights of each Libra member, to 1% or less.

          I agree Libra is no replacement for Bitcoin, and it may not even see the light of day. It has been fascinating to see the quick response from regulators, central banks and the BIS (too bad there is no CEO of Bitcoin who can be told to pause development testify before the House Finance Committee).

          Reply
  3. The Rev Kev

    Typical Silicon Valley methodology. Look to see where there is a transaction and then cram themselves in-between to collect data/money. But if Zuck is trying to take on the banks, he may be in for a surprise. I have no doubt that he has made an offer that if he is allowed to do this, then he will allow full access to any government upon request but I do not see any government falling over themselves to do this. This would be giving away the crown jewels. I think that when this is all done and dusted, there will be a new saying among the tech billionaires-

    First we came for the taxi-drivers, and they said nothing.
    Then we came for the hotel-owners, and they said nothing.
    Then we came for the factory workers with our robots and they still said nothing.
    Then we came for the bankers and all hellfire rained down on us.

    Reply
  4. Lukas Bauer

    I have never believed in the whole private corporate power permanently outgrowing that of governments thing.

    As a temporary historical fluke, yes, but never in a lasting way.

    Corporate capitalism isn’t actually anywhere near resilient enough for that, depending totally on so many factors outside itself being just right for it to flourish.

    If there was a way to turn back the clock and start over with a clean slate and a early agrarian society, some kinds of powerful governments would probably always eventually arise, but a repeat of capitalism as we know it seems extremely unlikely.

    I think for a couple of historically contingent reasons it did flourish for a while, using that window to get insanely powerful and destructive.

    But that window’s gonna close, and power will increasingly revert to where it has mostly concentrated for thousands of years before capitalism ever became a thing.

    Which has or can have some huge advantages, but also a lot of serious dangers, including loads of the power hungry psychopaths getting their jollies via a career in private industry right now wanting their fix in some kind of public cursus honorum again instead.

    Reply
  5. Susan the other`

    This is bringing the whole examination of “crypto” into focus. “Ironically, the swarming crypto industry cheering on FB may end up seeing themselves regulated or crushed by the same rules framework that is ultimately enacted for FB.” When you think about it, the biggest problem with money going crypto is not it’s obscurity as much as it is its vulnerability. If the world goes into crypto it, by definition, goes digital (aka electronic) in a foot loose way. That’s bad enough, but if there is a massive power outage the world shuts down big time. It’s one thing to be a half-baked libertarian and think you are creating financial freedom but all that “decentralized governance” is nothing more than reduced governance and that chaos is compounded exponentially because money is simultaneously randomized into the ether. What could possibly go wrong?

    Reply
  6. Jesper

    I believe that the intended market is this:
    https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-2018

    The Bank estimates that officially recorded annual remittance flows to low- and middle-income countries reached $529 billion in 2018

    The cost for many of the people sending is often quite high. If someone managed to do it cheaper than the existing ones (Western Union, Moneygram etc) while following existing legislation then that someone might make profits.
    Possibly it might even be possible to ‘follow’ the legislation by having fines for not following the legislation as a cost of doing business:
    https://www.reuters.com/article/us-hsbc-usa/hsbc-draws-line-under-mexican-cartel-case-after-five-years-on-probation-idUSKBN1E50YA

    As is, Facebook is chosing to invest in something. This investment may or may not work out. Possibly this investment is only being done as due to the ultra-low interest rates it is better to try investing on something than build up a cash-pile or returning money to shareholders (dividends and/or buybacks). Time will tell if the investment was/is good or bad.

    Reply
    1. Yves Smith Post author

      First, no regulator will tolerate this sort of thing happening. It allows for money laundering and tax evasion on a mass scale. Regulators have been flexing more muscle on this over time. Look at how the US was finally able to force Switzerland to relent on its cherished customer secrecy. This is one of the reasons for the war on cash. Most OECD countries ex the US are participating in what I believe is called a “base expansion” project., which is to reduce the amount of business and personal income hidden by the taxman.

      Second, you miss that there would be an additional layer of FX slippage which will impose further costs on the end user. Right now, anyone who sends money to say Mexico using Western Union faces one FX transaction, dollars to pesos. There’s a bid-asked spread so the rate the customer gets as a buyer of pesos is higher than what he’d get as a seller of pesos, but for Western Union the spread isn’t bad for retail.

      Here you have a new currency, ZuckBucks. You have dollar to ZuckBucks, and then ZuckBucks to pesos. ZuckBucks are very unlikely to be liquid because you won’t have trade transactions in ZuckBucks. FB can say the rates are whatever they want them to be and determine the bid-asked spreads, which are guaranteed to be wider than retail spreads on major currency crosses. If you go to a Thomas Cook stand in any major city, you can see the bid-aked spreads are often 1% or even more. Admittedly Thomas Cook is much like a convenience store for FX (you know you aren’t getting good prices), but the point is that a published exchange rate of 1% for each currency cross isn’t uncommon (plenty of place like hotels and cruise ships charge even more).

      So I anticipate ZuckBucks users would pay at least as much in FX losses than they do now in explicit fees.

      Reply
      1. milesc

        “First, no regulator will tolerate this sort of thing happening. It allows for money laundering and tax evasion on a mass scale.” – agree. There’s nothing (yet) to suggest there won’t be mandatory AML/KYC for depositing and withdrawing to authorised Libra wallets.

        Re FX, it depends how aggressive Libra is. There are companies like Transferwise and Revolut here in the UK that do a really good job of getting as close to wholesale market FX rates as possible for their users. Indeed it is Transferwise’s stated aim; they don’t want to make money directly from personal users on FX exchange, either by transaction fee or spread. I imagine Libra (or indeed companies like Transferwise operating Libra wallets) doing the same thing. Libra is particularly well positioned given its reserve. If it were to grow substantially in size, it could be a very substantial player in its own right in the wholesale markets.

        Or maybe that’s wishful thinking and Libra members will fleece Libra users at every opportunity, who knows!

        Reply
    2. Briny

      Remittances was also my read of where Facebook wants to be in the financial markets. It’s huge in California.

      Reply
      1. Jesper

        This article might also support a theory about reducing the cost of remittances:
        https://voxeu.org/article/stubbornly-high-cost-remittances

        That said, the goal of reducing the cost of small remittances to 5% is clearly within reach. And, efforts to streamline the know your customer and anti-money laundering processes (including through the use of legal entity identifiers) could get us there (and beyond) faster.6

        But we’ll see.

        Reply
  7. Synoia

    The Libra incoherence appears deliberate. The longer confusion persists, the more embedded in could become, under the guise of both a legal defense and deniability.

    Not permitting it is easy. Unwinding it is harder, and it is based in Switzerland to achieve more than one signifant purpose .

    It would be interesring to see all the material, information, presented to Visa and Master Card.

    I suggest thr House subpoena it, for their July hearing, and get it done before Facebook bribes all the congresspeople.

    Reply
    1. Yves Smith Post author

      No, the incoherence is so serious it means none of the ideas work. There is no there there to hide.

      It’s like saying you could build a suspension bridge over a wide river entirely out of cardboard. You could do that at most as a Christo-level spectacle, but not have traffic run on it.

      Reply
      1. Briny

        Really depends on how much cardboard, rope and epoxy you let me use (smiling as he says that). I am an engineer.

        Reply
      2. Synoia

        Ok, I certainly don’t understand it from what I’ve read.

        I’d still like to know how Visa & M/C got pulled into it to what appears to be $10 Million each.

        It must have been one hell of a presentation!

        Reply
  8. JimTan

    I think Facebook wants to create a digital currency for the same reason that Amazon sought to offer checking accounts last year – unregulated consumer transaction data.

    Companies like Facebook and Google have already hovered up user biographical data, demographic data, browsing histories, and real-time GPS locations for the purposes of selling highly targeted advertising that is supposed to reach their customers intended audience. I think the jury’s still out on how effectively this allows advertisers to reach their intended audiences, and to meaningfully change existing product sales. If they had a comprehensive ledger of everyones financial transactions, however, then that would tell them precisely which people buy every type of product. This type of consumer transaction data could come from banking or credit cards, which are heavily regulated businesses, or from cryptocurrencies which is an unregulated business.

    If this is their plan then my concern is these transaction databases, and the transaction data they supply to partners, might create a uniquely tempting target for identity theft hackers. There’s also the creepy factor of someone deliberately trolling through all your daily financial transactions.

    Reply
    1. Briny

      And that’s the “developed world” half of this bid. Covers the bases rather nicely from their view.

      Reply
  9. shinola

    IIRC, there was an article NC linked to recently that made a rather convincing argument that Libra is actually a form of ETF because of the linkage to actual currencies. If this is the case, perhaps the Zuck is taking a page form the Wall Street playbook.

    Wall St. wanted to issue what was essentially insurance but didn’t want to be burdened by pesky regulations in place for insurance (claim reserves, etc.). So they came up with an insurance-like (but “not insurance”) product & called it called a Credit Default Swap. I imagine most NC readers know how well that turned out.

    Zuck wants to create an an ETF-like instrument but doesn’t want to have to deal with reg’s already in place for ETF’s. So in order to avoid reg’s, just call it a cryptocurrency & voila – an unregulated ETF-like (but “not ETF”) product.

    Just spitballin’ here, but it does fit the “move fast & break things” model.

    Reply
    1. Synoia

      Libra claims to hold balances (Deposits?) which generally involves regulator oversight, because of Depositors’ the risk of loss.

      Libra does claim to have 100% backing in money, but the temptation to move to fractional reserves is immense.

      Reply
    2. Yves Smith Post author

      Even if the intent were to have this gimmick work like an ETF, it’s common for even major ETFs to be valued 2-3% away from their NAVs at the close of the day (this happened for extended periods with GLD, for instance, which actually holds real gold!) and as much as 15% during the trading day. As indicate above, the trading spreads and volatility would be major negatives.

      Reply
  10. flora

    From a Reuters’ story yesterday:

    “They [Libra/FB] will not get a free pass anywhere,” said Sean Park, Founder and Chief Investment Officer, at Anthemis, a venture capital firm that backs digital financial services companies. “And, given their intention to be global, they will ultimately need literally hundreds, perhaps thousands, of licenses from hundreds of different regulators across the globe.”

    https://www.reuters.com/article/us-facebook-crypto-regulation/facebooks-libra-coin-likely-to-run-a-regulatory-gauntlet-idUSKCN1TT30A

    Reply
    1. Oregoncharles

      Aha – They mean to be the Uber/AirBnB of money.

      They haven’t noticed the problems with Uber?

      Reply
  11. Savita

    I have a good life. Can ‘the little Zucker’ say that about his? Does he have fun each day? A sense of freedom, lightness, expansion, zest? People that enjoy his company and genuinely care about him?
    Doesn’t FB have enough money, power, influence. Why do they even need to think up these hair brained schemes – haven’t they got enough of everything? It’s not as if this Libra is a plan to make the world a better place, or anything
    NB. 10 million from Visa et alia isn’t very much money at all, surprisingly little no?

    Reply

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