Dear bankers: Learn to love Libra
The attacks on Libra, Facebook’s proposed crypto-currency, reveal the financial world’s fear of losing control.
I’m a fan of conspiracies, yet not a believer. The real world is never as organised and consequential as a good conspiracy. But is there a conspiracy against Libra, Facebook’s proposed crypto-currency? I think so.
First, some good news for the currency: the remaining members of the Libra Association have formally joined it. This dampens bad news that six establishing members, including PayPal, Mastercard, Visa and eBay, have withdrawn from the association. Not coincidentally, they represented all the major US payment processors in the group.
Around 24 companies remain, but these departures have thrown Libra’s future into question.
Maybe we can take some solace in a tweet from David Marcus, the PayPal president Facebook headhunted several years ago to help lead its blockchain division:
“I would caution against reading the fate of Libra into this update. Of course, it’s not great news in the short term, but in a way, it’s liberating. Stay tuned for more very soon. Change of this magnitude is hard. You know you’re onto something when so much pressure builds up.”
Boy, and there is pressure. Have no doubt – the status quo wants to crush Libra. Two US senators previously wrote letters to some of the departing companies, urging them to quit and hinting further involvement could invite closer regulatory scrutiny. That’s a threat, no matter how you turn it, against something that barely exists beyond a white paper and some fundamental systems. The letters effectively told the companies that just by thinking about Libra they are risking legal ramifications.
International leaders have not been much better. France's minister of the economy and finance, Bruno Le Maire, said they would block Libra development in Europe, adding Libra "can't and…must not happen".
It’s abundantly clear that many in the financial world want to kill Libra.
He later penned a weak argument in the Financial Times that France supports financial technology development, but didn’t do much else than uncompromisingly attack Libra.
Germany has also jumped in and the two countries released a joint statement. Among their concerns is the sentence: “No private entity can claim monetary power, which is inherent to the sovereignty of nations.”
Politicians and such opposing Libra make it seem as if they defend the greater good. In reality, they are trying to shoot the horse before it’s born, let alone leaves the stable.
What Facebook released was not a product but a whitepaper, meant to stimulate discussion and progress on Libra. It made numerous elements clear: Facebook won’t be in control (the Libra Association will) and the system will over time aggregate control to its users. It would also be a ‘stablecoin’, a crypto-currency with measures in place to stop it from being as volatile as, say, Bitcoin – a major barrier against the adoption of crypto-currencies for everyday transactions.
Not everyone in the crypto-currency side is happy with Libra either, but mainly because they don’t think it does enough. The outright hostility is coming from the financial establishment, which has been a mixture of paranoia and technophobia. It’s abundantly clear that many in the financial world want to kill Libra. Discussion is already a step too far for them.
Some raise valid concerns – weakening central banks’ ability to conduct monetary policy or reducing US control over the global financial system are prominent examples. But there is an issue: these are not invitations for discussions. They are outright doomsaying, used specifically to show why Libra is a bad, bad, bad idea.
I’m no economist, but it doesn’t look like there is much control over global monetary policy anyway. Nor do I lap up the opinions of a myopic and atavistic financial market that to this day hasn’t punished the tax-dodgers of the Panama Papers, or taken comprehensive responsibility for the previous global recession.
I also take issue with how those with power are using Facebook’s privacy issues as a convenient stick to beat Libra with. Yes, there are faults within Facebook’s conduct. But these attacks are less intellectual and more informed by tabloid headlines and reactionary truisms.
For financial types who pride themselves on in-depth, logical analysis, there is so much emotional knee-jerking going on that all the furniture must be on their sides by now.
It appears that, for all the years of looking at blockchain technologies, the financial world remains completely unprepared for what’s coming. The distributed ledger approach of blockchain is very potent and what Libra proposes will rise again.
You can bet that Amazon and other major tech companies are watching the Libra ordeal closely. If Libra fails, another will step in. The opportunity to get a major foothold in the global economic system is too big to pass up, especially since there are major inefficiencies and transparency issues that blockchain could address.
A lot of the dangers Libra gets accused of already exist yet don’t seem to be getting much attention. Libra is being accused of breaking what is already broken. Libra’s critics make some good points, but they are being fundamentally disingenuous about the larger issues and their motives.
Up to now, crypto-currencies haven’t been a threat to the status quo and financial institutions have been slow at exploiting blockchain. But Facebook possesses enormous scale and reach. It can make crypto a serious contender and that scares the hell out of the bankers.
Some say Facebook might violate my financial privacy. But banks have been selling my details to third parties for decades. Fears about money-laundering are also misleading – aren’t a number of international banks yet again being fined for this crime, something that seems to happen every few years anyway?
The criticisms aimed at Libra have validity, but a lot of them smack of the pot calling the kettle names.
Libra isn’t going to die, not the least because many companies want a better and more formal crypto- currency system that is removed from the anarchism of the general crypto market.
If you read the Libra white paper, it’s clearly an ecosystem that’s getting plenty of thought and attention. It is also a good combination of the best traits from other crypto-currencies such as Bitcoin and Ethereum.
The finance world might know money, but so far it has displayed about as much grasp on technology as politicians understand encryption. They only possess enough knowledge to cultivate fear and then they think that by saying ‘no’ they can stop this train.
Good luck. Libra’s fight will serve as the template for future major crypto pushes. No technology is naturally inevitable. Yet so far, the attempt to stop Libra is not because it won’t work – but that it might work too well. When you oppose progress because you fear its power, then you’ve already lost.