As a staunch believer in, and one-time ‘miner’ of, crypto-currency, several of you have asked for an opinion concerning the recent news that several of the leading supporters of Facebook’s global digital currency, Libra, appear to be having second-thoughts and are pulling the proverbial plug. Yes, it is true that the support of such formidable behemoths as PayPal, Visa and Mastercard is wavering, but a closer look at their motives could reveal exactly why this is happening.
Libra, named after the ancient Roman measurement of weight, has a stated aim of becoming routinely used for everyday common-or-garden transactions by Facebook’s global community of 2.4billion users, many of whom are considered ‘unbanked’ ie without a bank account. Therefore, it’s not too great a leap of faith to envisage the ‘Zuck-Buck’ as potentially forming a whole new proprietary financial system. With its traditional advertising revenues plateauing, FB have hit upon a great way of monetising its existing messaging, introduction and small-business services with a form of digital token, not unlike Tibit, which some of you may recall from my dim and distant past.
Libra is not, however, a crypto currency. Yes, it operates above a version of the double-entry ledger blockchain but it is backed, and pegged-against, a raft of established FIAT currencies and securities, protecting it, in theory at least, from the notorious fluctuations Bitcoin, Ethereum, Litecoin et al have suffered. Libra is not in and of itself in the same way that other cryptos are. Furthermore, the whole complex shenanigans of setting-up a near-impossible-to-identify digital wallet in which to store your stash is replaced by an ecosystem, Calibra, and initiated by a small number of penny-payments, not unlike that of PayPal. This process will be subject to exactly the same regulation, verification and anti-fraud controls as setting-up a bank account or applying for a credit card requires.
In reality, with no loan or overdraft facility envisaged, Libra is far more similar to a traditional pre-loaded, pre-paid debit card which can be used on one single platform, Facebook, and it’s this that ironically lends itself to the crypto comparison. Bitcoin was not envisaged as being all things to all people and as a direct replacement to traditional currency. It’s vision saw it being used for certain applications, purchases and platforms, not for universal use. This remains the same: a store of value and a means of exchange…but not for everything.
The development of alternative banking systems is nothing new but has yet to be done so on anything but a relatively local level. Kenya’s M-Pesa, launched by Safaricom in 2007, now has 17 million active users and over 25% of the country’s GDP flows through its coffers. In China, Alipay and WeChat Pay process more than $15trn of mobile payments. WTF. The US, as anyone who’s ever visited knows, lags centuries behind in smooth, contactless mobile payments. And it’s this, along with an increase in prying regulatory eyes, the big boys fear.
Claims of increased crime, fraud and money-laundering are spurious at best and what currency, more than the dollar, have these acts been committed under? The nightmare they fear is that the ‘old guard’ of finance will become obsolete via the effective marrying of ‘big tech’ with ‘fin tech’, under the guise of Calibra and Libra. This was exactly the same concern experienced following the 2008/9 launch of Bitcoin and let’s not forget that this happened as a direct action against the investment banking precipitated financial crash the year earlier. Protestations of financial instability from the likes of the FED and Bank of England fall on my deaf ears after the unprecedented bailout of the whole rigged system and the huge levels of quantative easing thereafter, devaluing everything we own.
The forces-that-be are now undoubtedly railing against Libra but it represents exactly the long-overdue digital shake-up the inefficient, largely corrupt, banking and global payments system badly warrants. Undoubtedly there are more machinations and power-plays ahead but, to my mind, it’s also another case of the financial incumbents keeping their friends close, and their enemies closer still.