This is part one of a three part series exploring Libra, a digital currency Facebook and its partners plan to launch in 2020. Parts two and three will be posted over the next few days leading up to Facebook CEO Mark Zuckerberg’s scheduled appearance before the United States House of Representatives’ Financial Services Committee on October 23, 2019.
On June 18, 2019, Facebook announced that it would begin moving forward with plans to launch Libra, its global digital currency initiative. Facebook envisions a future where Libra encourages greater economic participation for its 2.4 billion users as they pay fewer fees over time and engage in financial transactions with greater security. Such a complex undertaking will not only require support from Facebook’s global corporate partners, but regulatory approval from policy makers around the world as well. Should Facebook be permitted to proceed with the creation of Libra? In this series, I will explore three prospective answers to this question.
First, I’ll explore the view of Facebook and other digital asset advocates as delivered via written testimony to the United States Senate by David Marcus, Facebook’s head of Calibra, and Jeremy Allaire, CEO of Circle, a financial services company specializing in digital assets. They have positioned the digital currency as a solution: a low-cost, secure, and efficient way to make financial transactions and send peer-to-peer payments by utilizing Facebook’s platform and blockchain technology.
Representing a second perspective, I will discuss arguments from United States Senator Sherrod Brown and European Central Bank (ECB) Executive Board Member Yves Mersch. These objectors share a common concern over the potential consequences of trusting the money supply to a corporation with a past as sordid as Facebook’s. These policy makers argue that because we cannot trust Facebook, we should not trust Libra.
The final perspective explored is represented by Senator Mike Crapo and ECB Executive Board Member Benoit Coeure. Being less suspicious of Facebook’s ability to act as a responsible steward for Libra, they argue that if the right set of rules can be worked out, a blanket prohibition against the creation of Libra may not be the most prudent course of action.
Given the scale of the global financial system and the number of Facebook users worldwide, stakes are high. The risk of enacting nearsighted policy prior to properly understanding the complexities of the issue looms darkly over the heads of central bankers and Federal regulators, all of whom continue to monitor Facebook’s movement on Libra with rapt attention.
The Digital Currency Solution
Facebook should be permitted to proceed with the creation of Libra because while the status quo leaves many underbanked and subject to excessive fees, Libra offers 2.4 billion users with “a more efficient, low-cost, and secure alternative” to use and send money across borders.
In a US Senate hearing held on July 16, 2019 before the Committee on Banking, Housing, and Urban Affairs, Facebook’s former Vice President of Messaging David Marcus provided testimony about Facebook’s plan for Libra. Marcus, who is also the former president of PayPal, recently transitioned to a new role within Facebook as he took the reins of Calibra: Facebook’s upcoming virtual wallet app designed to hold Libra tokens and facilitate digital payments. Marcus was the sole witness at the Senate hearing, which was fittingly called Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.
Two weeks after David Marcus delivered his remarks and answered questions from Senators, the Committee held another hearing on July 30, 2019. With a total of four witnesses called to testify, this hearing was wider-reaching and called Examining Regulatory Frameworks for Digital Currencies and Blockchain. Jeremy Allaire, CEO of Circle Internet Financial, a digital asset services firm, was the first witness to testify. By contemplating Marcus’s July 16 remarks along with the testimony of Jeremy Allaire on July 30, the Digital Currency Solution perspective is reified.
As Marcus states, “The goal of Libra is straightforward: A digital currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.” By establishing the 100-member Libra Association based in Switzerland, Facebook claims that it will not exert undue influence over the currency as it is minted because Facebook’s single seat in the Libra Association will prevent it from doing so. Additionally, there are a host of technical benefits to embracing blockchain as the underlying technology upon which to build the Libra ecosystem. As attested to by Allaire, digital currencies built on blockchain “can be easily stored, transferred, traded, and exchanged, while providing utility to users and benefits to businesses, all within a public infrastructure that is highly secure, tamper-proof, open, and interoperable.”
But the potential of an emerging technology is far from the only reason Marcus utilizes as grounds for creating Libra. The global financial system, Marcus argues, is currently facing a crisis of the underbanked, a term used to describe millions of people around the world who lack access to basic financial services at a reasonable cost. “The status quo is not working for many,” Marcus argues. “It is too expensive for people around the world to use and transfer their money. We believe Libra can offer a more efficient, low-cost, and secure alternative.”
Statements from David Marcus and Jeremy Allaire aside, not everyone is as optimistic about the possibility of our global financial system becoming another piece of the puzzle that is Facebook’s already bloated private-sector portfolio. As we will see in the next part of this series, at least one group of policy makers from the United States and European Union’s Central Bank strongly object to permitting Facebook to proceed with the creation of Libra.
Sources for this post
- US Senate – Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations
- Testimony of David Marcus, Head of Calibra, Facebook
- US Senate – Examining Regulatory Frameworks for Digital Currencies and Blockchain
- Testimony of Jeremy Allaire, CEO of Circle Financial