I have to join the sceptic’s side of the aisle on the ‘acceptance’, of what for now I will call PayPal2.
But first I must remove one element from the argument against that diverts from my real concerns.
Sure many of the regulators fears are valid but to argue, as Brunu Le Maire has done, that Facebook’s proposal presents a probable real conduit for money laundering and the possible financing of terrorism is (pardon the pun) a little rich – where was the similar outrage and dissent over previous cryptocurrency emergences?
I’m reminded of the somewhat hypocritical stance of the Egyptians, Indians, Lebanese, Saudis and Turks when they officially condemned Bitcoin a few years back citing fears that there was a great risk of digital currencies being used for nefarious purposes – much the same as Le Maire now – when those people had been historically using the hawala system, the cashless money transfer system invented by Arabs centuries ago, without so much as a murmur of objection as to the total lack of transparency, regulation or governance therein.
So no, whilst I believe that there is a very real possibility that the proposed system could, and probably would, be used for less than scrupulous financial transactions – as indeed current cryptocurrencies are no doubt being utilised – that should not be the key objection.
If governments allow the creation of “alternative currencies” like bitcoin or variations, as they so far seem open to, they deserve the nightmare of dealing with the financial and trade chaos and criminal ‘casinos’ that will ensue.
More to the point, it’s not clear that governments can or should prohibit such currencies. However, it must be stated clearly and firmly that under no circumstances whatsoever will the UK Government (or others) make good any losses sustained by those who participate.
As if to counter this the Libra Association has said that, “… unlike Bitcoin, Libra’s value will be backed by a reserve of stable currencies and government bonds, meaning its value will be stable and each unit of the currency will be insured by real assets…”. So they are guaranteeing stability of the new currency by tying its value to the old currencies they hope it will supersede? An interesting approach!
To me this offers more questions than answers, for instance:-
- What will be the reserve asset ratio, who will set and regulate it?
- Who will manage / own the reserve assets and how much will it cost to manage them?
- Who will govern the Fiat part of the currency and how will it be issued (all mined block chain or by a management committee?)
- If they start letting people borrow money, who regulates issuance? (Borrowing is how fiat money is also created.). What will be the interest rate and who will set it?
- Who will stand behind it in a crisis?
In their proposal Facebook suggested that they have 100 global businesses associated with this product - I’ve yet to see the detail here, but have no doubt this is a real possibility – which, together, will have the economic firepower to redefine fiat currencies, offering a serious alternative in the money markets.
So they seem, on the face of it, to have covered that base - but what I can’t get over is that with Facebook’s track record on data and privacy, quite frankly I consider they shouldn’t be allowed anywhere near a currency or banking.
So interesting times ahead - as I’m sure there’s a great deal more we need to know about this!