Facebook Libra: The Currency of An Empire
In June 2019, Mark Zuckerberg unveiled his latest tool to help consolidate Facebook’s social media empire: the “cryptocurrency” called “Libra”. This currency differs from the classic Bitcoin and is to be backed by a basket of traditional reserve currencies, primarily the US Dollar. Central bankers have been taken by surprise with some going as far as banning Libra’s use and others accelerating their plan to issue electronic forms of traditional money. Many in the financial world did not expect Facebook to challenge policymakers in this way and it’s certainly a savvy move by Zuckerberg as it extends the reach of his social media empire further still into the lives of its users.
The Non-State Empire
Characteristics of an empire include flexible borders and an unlimited appetite for conquest and political control. They often consume vast geographical areas without altering their basic identity such as the British empire barely a century ago. Parallels with Facebook can be struck in part to the sheer scale and influence possessed over its users. These users come from many nation states who may be politically hostile to one another, differ greatly in cultural norms and we only need to look at troll farms, fake news, Donald Trump's election and British withdrawal from the EU to understand the influence the establishment and rogue parties can have on the user base. In the past Facebook has claimed to be apolitical and took no responsibility for posts on the platform, but since then has begun to introduce censorship and policing teams who have the responsibility for what gets broadcast to billions of people. It goes without saying that Facebook dominates the social media sphere with its subsidiaries WhatsApp and Instagram having over 2.4 billion active users. In this sense, it’s an empire and interestingly one of the first which could be considered stateless.
Facebook already allows users to send traditional money (like US Dollars and Euros) to others through Facebook Pay in its Messenger app. It would appear these tools are not enough for Zuckerberg as his proposal now is to issue his own money. For the end user the gains would be unnoticeable, so why take this step?
By proposing to issue its own private cryptocurrency, Facebook could become a threat to central banks and the wider financial system. Policymakers and national governments could find themselves bending to the will of a “new” bank and the risks to traditional currencies would be great. This could be interpreted as an emerging empire flexing its muscles, assesing the barbarians who lie beyond the current borders. Government-issued electronic currency (note a cashless society not cryptocurrency) was previously contained to central bank research papers and passing references in press releases.
Since Facebook announced their intentions for Libra, electronic currency has been included in official speeches by central bankers and politicians are beginning to take note. Initially, central banks were uninterested or did not respond to Facebook’s emerging currency but have since taken steps to either ban its use or accelerate their own agendas. Essentially by announcing Libra, Facebook has influenced the direction of financial policy. For example, if we read the recent speech from Mark Carney at the Kansas City Fed where he discussed the creation of a “synthetic hegemonic currency”, and comments from the French finance minister at the recent G7 summit who voiced displeasure over Facebook's plans, we can see this topic is high on the agenda.
Cause For Concern?
Facebook can market their Libra cryptocurrency as independent and decentralised from central banks, so suddenly central bank currencies have potential competition and individuals have choice. With 2.4 billion active users at their disposal, Libra could quickly rise to the status of a hegemonic currency so users and governments should be worried!
Zuckerberg has already outflanked policymakers and wants to consolidate Facebook’s position as the pre-eminent social media empire in the world. Zuckerberg also wants to keep Facebook’s users engaged to deliver revenue and now with Libra transaction fees could hit billions of dollars. This new step will push the users further into the web of his social media empire from which they may never emerge. Unfortunately, the platform provides many users with their sole source of information and now proposes to regulate their wealth and spending habits providing a level of control empires of the past could only dream of.
Central banks have 2 options and in both cases Facebook will benefit:
- Press ahead and issue an electronic currency which would result in Libra posing serious competition. Facebook would still benefit and is still likely to grow in the number of users across the globe.
- Hold back issuing an electronic currency which could result in Libra going unchallenged and reaching the status of a hegemonic currency.
If we do reach a cashless society, anonymous financial transactions would certainly become a thing of the past, which would raise serious data privacy concerns. Given Facebook’s reputation for privacy and lax data security we should be cautious to have all these transactions saved on Facebook's servers but would central bank systems be any better?
Is Libra Revolutionary?
We don't believe it is...
Libra is intended to be fully asset backed by traditional fiat currencies which would bring scorn from cryptocurrency aficionados. Looking for a real-world example we could look at The Bank of England’s association with Scottish and Northern Irish bank notes. These notes are asset backed with English notes which remain locked away in a vault (as at he Titan note) so in this sense Libra achieves nothing new.
Facebook announced that an initial US$10million would be released to give Libra full asset backing and it is not clear what the exchange rate would be between the fiat currencies and Libra. If Libra is backed by traditional reserve currencies for stability, then what is the point of it? Perhaps Mark Zuckerberg wants to cement Libra as the new world reserve currency, turning the tide on the US dollar’s fall from grace.
It is also very important to note that Libra would not be a decentralised cryptocurrency as is the case with Bitcoin and Ethereum et al. The “Libra Association” is intended to function as a central bank in all but name and therefore once again Facebook is not creating something new.
Labelling Libra as independent cryptocurrency is a falsehood and really the currency is a proxy for continued use and expansion of the US dollar across the world. Essentially, the more end users Libra amasses, the stronger the US dollar becomes.
The only conclusion we draw is Libra is a direct power challenge to sovereign countries, their respective currencies and that this is a move of an empire looking for domination.
Surviving the Test of Time
Empires rise and fall but the basic ideas that built and sustained that empire carry on, whereas the individual entities which were absorbed by it are all but forgotten.
For example, Numantia was a small mountain city in ancient Iberia that had managed to resist Roman occupation until 134 BC. The Celtic Numantians had their own culture, language and religion. Numantian resistance to the Romans is celebrated in Spanish folklore, but the Spanish today are much more Roman than they are Numantian. From law, language, culture to cuisine, Spain is far closer to Rome than it is to its ancestral roots. The same story applies to all the Celts, Gauls and other tribal groups who fell to an empire.
For Spain the Romans may have long gone, but they left their stamp on Spanish society. In this sense it will not matter if Facebook or Libra survives or not; social media, cryptocurrency and electronic currency are set to be part of the future. The current image of business, value, wealth and the use of physical cash may be confined to history in a similar way to Numantian culture. Small rebellious tribes intent on keeping their culture alive will fight and stand firm, but ultimately will submit to the will of an empire.
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