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How Facebook's Libra could endanger the economy? | bestbrokers.co.uk

How Facebook's Libra could endanger the economy?

Facebook's Libra is currently making the economic headlines across the globe. It was therefore a hot topic at the Chantilly (France) G7 meeting of finance ministers and central bankers. While that meeting was ongoing, the U.S. House of Representatives and the U.S. Senate were carefully listening to David Marcus, the manager for Facebook’s digital currency project.


This is a companion discussion topic for the original entry at https://www.bestbrokers.co.uk/blog/2019/08/19/how-facebooks-libra-could-endanger-the-economy/

Carlo -

Yes, a very good article that outlines many of the increasing concerns of the impacts from this relative newcomer to the financial arena.

Many that I already voiced in [a previous comment on here] in late July of this year. (Bitcoin vs. Libra: What should you invest in ? | bestbrokers.co.uk):

But let’s not forget that Facebook from inception until 2014 was primarily associated with social networking - underlined by their acquisitions of the likes of Instagram in Apr 2012 and WhatsApp in Feb 2014.

However, once you dig a little deeper it becomes readily apparent that the real strategy for the future of FB, from later in 2014 and onward, has been to capitalise on earnings growth through greater diversification - we have seen them buy out the immersive virtual reality experience provided by Oculus VR

the UK drone company Ascenta,

ProtoGeo Oy from the fitness and health monitoring market,

Vidpresso a leader in interactive video streaming and conferencing

and the UK/Israeli team messaging app Redkix

So it should have been no great shock to those ‘in the know’ when Libra was announced, especially in light of rumours running around the industry in late 2018 early 2019…

But has this been a step too far and/or too soon for MZ?

Many seem to think so and are seemingly joining forces to

It was back in June of this year that Mark Carney, governor of the Bank of England, set this particular ball rolling when he gave Libra a cool reception stating that Threadneedle Street would approach the digital currency with “an open mind but not an open door”.

He said the digital currency would have to meet the highest standards of prudential regulation and consumer protection, and address issues such as money laundering and data protection.

Libra has been promoted by Facebook as a freedom currency, to allegedly provide low cost online commerce and financial services to an otherwise unbanked population of over a billion people using, amongst others, its current Messenger and WhatsApp applications.

Despite this new cryptocurrency being developed alongside some of the world’s biggest payment companies it has still encountered substantial regulatory scrutiny in the US and Europe.

It is clear that the Cambridge Analytica scandal, Facebook’s management of its customers’ data and the company’s role in the spread of fake news and extremist videos is not so soon forgotten or indeed forgiven.

In part recognising these obstructions and in part seeming to offer an olive branch, the head of policy and communications at the Libra Association, Dante Disparte, emphasised the importance of the project’s backers, which includes the payment companies MasterCard, PayPal and Visa and Lyft and Uber, working together with regulators around the world in order to achieve a “safe, transparent and consumer-focused implementation of the Libra project”.

Perhaps such an olive branch was deemed necessary given the roasting that David Marcus (Mark Zuckerberg’s lead man on the Libra launch, AKA ‘Mr. Facebook Cryptocurrency’) received when he gave evidence in front of the US Senate Committee on Banking, Housing and Urban Affairs on 16th July this year.

He was categorically left in no doubt of the depth of the Senate’s anti-Facebook sentiments as they made it clear that FB “ doesn’t deserve our trust ” and in fact that it “ should be treated like the profit-seeking corporation that it is” .

As if all that wasn’t enough, most recently on 13th September we have had Bruno Le Maire French Minister of Economy and Finance Tweeting that "In the current conditions, we should refuse the development of #Libra in Europe while working on improving the efficiency of our common payment system. We should also work on the creation of a digital public currency”. Thereby making the French viewpoint on Libra crystal clear.

So it seems that there is a lot more to do before Facebook can launch Libra into the world – back from the originally presented date of mid 2020 for sure – if they stick to their promise of holding back the launch of Libra until Facebook has satisfied concerns of regulators the world over.

Amusingly, I have to mention that regardless of all of the above, Facebook is still in fast forward mode on the technology side ahead of launch.

After more than two months in beta testing with 50 security researchers and block chain experts, they have thrown open the testing doors to Joe Public by announcing a Libra Blockchain Bug Bounty ranging from £500 to £10,000 dependent on the scale of threat from the bug discovered. Fancy a go?

But now to the real point of this post.

Shock horror - I for one do not see Libra as a threat to the economy, financial stability or sovereign currencies!

If you care to take a read through the Libra White Paper you may note tucked away on the last page the following statement of intent: “An additional goal of the association is to develop and promote an open identity standard. We believe that decentralised and portable digital identity is a prerequisite to financial inclusion and competition”.

It has been clear to all that Facebook’s business model since inception has been to harvest and monetise personal data.

These two brief and seemingly innocuous sentences tell me that nothing has changed here. By implication they tell me that the real aim behind Facebook creating Libra is to set the standard for global digital identities for the future.

It’s not control of finance they are after but something much more valuable - the control and global dominance of digital identity data!

This is a prime example of how people have to adapt and change to circumstances in the financial markets in relatively short space of time.

In June 2019 Mark Carney, governor of the Bank of England, set this particular ball rolling when he gave Libra a cool reception stating that Threadneedle Street would approach the digital currency with “ an open mind but not an open door ”.

Now, less than a year later we have the Bank of England chief cashier, Sarah John, and many other prospective international partners signalling support for an ‘official cryptocurrency’.

One has to ask what exactly would an ‘official’ cryptocurrency offer that can’t be done with the cryptocurrencies already established in the market place.

Moreover, is it not the case that the prime use for cryptocurrencies these days seems to be as a mechanism for speculation?

So isn’t this new call for bank-controlled cryptocurrencies all a little too late and somewhat hypocritical given their previous stance on the likes of Libra?

Maybe yes, but then again maybe no.

Everyone will probably agree that a digital currency is an asset that can essentially only exist electronically but then - simultaneously we are that aware that a few cryptocurrencies have bucked this trend and stepped over the line from the virtual world and into the physical world by creating credit cards and other physical devices with various degrees of success - but in the main the greater majority have continued as entirely intangibles.

The prime examples of this, such as Bitcoin, Ethereum, Litecoin, Ripple, Tether and the like, whilst in their conception they were designed to be used to make payments, today they are seen as assets with investment potential by financiers who acquire them in the belief their value will increase.

So why is the BofE currently carrying out research into digital currencies and the technology that supports them?

Is it greed, is it fear, or a combination of these factors underlined by the knowledge that other central banks such as China - widely viewed as the pathfinder here and far ahead of the pack although, understandably, detail of their project(s) are kept well under wraps and the Riksbank in Sweden rumoured to be close to launching an “e-krona” - have been clearly making strong progress in developing their own digital currencies for quite some time.

Obviously such cryptocurrencies would be different in as much as they would be issued and governed by a central bank and thereby have a stable value, which should make them more attractive and readily adopted outside the field of speculation.

The BofE is not alone in this as we also know that it has teamed up with other central banks - the likes of Japan, Switzerland, Canada and the Eurozone - at least for the initial feasibility stages. Their initial investigations will have to look closely at what effect any central bank controlled currency would have on overall financial stability and monetary policy and assess how safe and resilient they would be in the long run – factors not necessarily priorities for their future competition

Perhaps we should also be asking what of Libra itself right now?

Well, still the ups and downs of Libra keep on coming - for the last eight months or so it’s had to survive a pretty heavy onslaught of negativity, possibly deservedly so.
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Like a semi-punch drunk middleweight this ‘Freedom Currency’ survives the round, seemingly gets saved by the bell only to be faced with more of the same resistance in the next round.

Back in late July 2019 we had Brad Garlinghouse, CEO of Ripple, openly criticising what he called Silicon Valley arrogance surrounding the Libra roll out. In a further interview with Forbes in October 2019 again he held nothing back as he opined that " If I were a betting man, I would take an Augur bet… I think there’s a time-based element on Augur as well, so I’ll say… the end of 2022, I think Libra will not have launched”.

In December 2019 we had the President of Switzerland, Ueli Maurer, quoted in Reuters declaring his strong disapproval of Libra and that the “…Libra project has failed in its current form and needs reworking to be approved….I don’t think (Libra has a chance in its current form), because central banks will not accept the basket of currencies underpinning it…” .

Then earlier this year, in January, it was announced that the Libra Association had lost the eighth company as Vodaphone the UK telecom giant withdrew. Previously we had heard that eBay, Booking Holdings Inc, Mercado Pago, Visa, Mastercard, Stripe and PayPal had all decided to leave the project.

Perhaps tellingly, from an interview with the Financial Times in February, the Indian-American business executive currently president and chief executive officer of Mastercard, Ajaypal “Ajay” Singh Banga revealed that his company had pulled out after their diligence exposed issues regarding compliance and overall business model questions.
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He was also greatly concerned that there was an apparent resistance by other members of the Libra Association to sign up to data management controls, anti-money laundering controls and client identity verification processes.

As a small counterweight to all these negative stories, finally in February 2020 we had the US Federal Reserve Chair, Jerome Powell, acknowledging the potential power of digital currencies as he appeared to single out Libra, the announcement of which he labelled a “ wake-up call ” for the United States, whilst discussing cryptocurrencies as part of his testimony to Congress.

What some could interpret as further positives for Libra, on February 21st we had Shopify announce that it was to become part of the Libra Association and again on February 26th Tagomi Tweeted that they too were joining the Libra Association- "We’re excited to become a member of @Libra_, sharing a common mission to expand financial inclusion. We believe the Libra project is poised to create a simple, inclusive, and global payment system that will empower billions of people left out of the global economy."

So for what it’s worth, my money would still be on Mr Z pulling something out of the bag if only to save face. He’s never struck me as someone to walk away at a few signs of adversity - he certainly has the financial clout to move forward with Libra, it’s just a question of whether he can reach a release date in a timely enough manner to achieve his undoubted global identity acquisition goals.

Will it endanger the economy - it could have in its initial format, but given the continuing scrutiny it will bear I doubt very much whether it will be allowed to by “those that know and hold the real power!

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