Libra is set to become Facebook’s first official cryptocurrency, with a plan to become a new global currency created to facilitate exchanges for consumers in both the developing and developed world.
At a time when the finance and banking world seems to be undergoing a radical transformation, a corporation controlling currency has profound consequences for the average consumer and world economy.
The cryptocurrency boom
Over the past few years, anyone following technology will have seen Facebook under constant fire for disrespect of ethics guidelines and multiple privacy violations.
Undeterred by the negative press coverage, Facebook co-founder and CEO Mark Zuckerberg has unveiled a new plan to make Facebook even more significant than before. In fact, to some it appears that Zuckerberg’s appearances in Congress have bolstered his the impression that politicians do not have a clear understanding of the basic principles of social media.
As a result, his team has compiled an extensive program to make Facebook’s very own digital currency, Libra. However, there seem to be some severe problems with Libra that need to be addressed.
Ever since the bitcoin boom of the mid-2010s, thousands of entrepreneurs, startups, big corporations, and anonymous internet dwellers have tried to cash in on the strange new world of cryptocurrency. Many became significantly richer while others lost large sums of money on the latest trend.
The idea is quite enticing: to have a form of payment that can be sent to anyone, at any time, with minimal delay and entire anonymity. It’s a way to avoid hefty wire transfer fees and bank delays, and to quietly pay for items one would rather keep private, as payments are kept separate from large, centralized institutions and the government.
In June 2019, Facebook revealed its plan to build its own world currency. Its strategy consists of bringing corporate investors to the table in order to offer them a place on the Libra Association in exchange for a minimum of ten million dollars in investment.
The Libra Association is an independent, non-profit organization headquartered in Geneva, Switzerland. Each member of the association will get a single vote on all matters concerning the coin. This self-professed decentralized approach is a result of financial executives, who have invested in the currency, saying they would not trust Libra if Facebook had a disproportionate say in steering the currency.
The problem is that Facebook has already invested egregious sums of capital into the project. Each founding member has no more than one vote or one per cent of the vote, whichever is greater. However, if Mark Zuckerburg decides he is not happy about the direction the coin is going in, he has the power to pull funding and unilaterally put the risk on the other investors’ shoulders. As such, although, in theory, Facebook has only one vote, in practice, it holds a disproportionate amount of control over the project.
A plan to make Libra one of a kind
The claim that the Libra will be decentralized is somewhat ambiguous. Officially, it is not centralized under the control of a single authority, as, at least on paper, Facebook does not have complete control of the asset. However, the Libra Association will still be made up of corporate monoliths whose vested interest lies in making money off their users.
Another problem with Libra is that it could try to gain a monopoly over other forms of payment in the developing world. Facebook claims that the goal of Libra is to democratize finance and offer financial services and opportunities to hundreds of millions of people without bank accounts. That sounds munificent, but appears somewhat dubious considering the company’s past transgressions: How many times has Facebook been scolded for accumulating, selling, and profiting from user data?
User data is considered and used as a commodity by Facebook, without its users’ consent. This raises questions about the company’s ethics since users’ personal information is then used as a marketing tool. For example, the 2018 Facebook-Cambridge Analytica data scandal, in which the data of 87 million persons was used to allow politicians to target and influence specific voters, is proof of such misuse.
Many advocate that personal data, which is often considered to be as inalienable as one’s labour, should be remunerated for this precise reason.
It appears that we cannot trust Facebook with our user data. Yet the Libra would ask us to trust Facebook with not only our user data, but also with our financial record – and actual income.
The situation of a corporation accumulating such power refers back to the British East-India trading company, a group founded in the 1760s in London that started as a modest organization looking to expand trade with the East. While their goals started small-scale, they eventually decided to mint their gold, copper, and tin coins. Their objective was to sidestep local regulations in India and China and use European issued currency instead.
This new form of european-minted money came to dominate the market, crushing all opposition and allowing unchecked growth for the trading company with huge increases of land taxes. It also led to a massive famine that ended up killing millions of Indigenous people and allowed the formation of a gigantic corporate army hell-bent on dominion on other parts of the world.
With Libra, Facebook is presented with that same opportunity to dominate the financial sphere of entire countries in unstable markets all over the world. In places like Zimbabwe for instance, where the US dollar and South African Rand were recently banned, and trust in the new national currency is low, a new digital currency is very appealing.
The fact that there is no regulatory oversight of cryptocurrencies by an institution democratically managed suggests that this will lead to abuses in countries with a weaker institutional structure and democracy. In such countries, new regulations may go against the best interests of the people. For example, with the implementation of stricter access restriction to certain products when people are in financial deficit, risky cash injections and sudden cut offs that induce a high currency volatility will likely become more frequent.
Moreover, when it comes to consequences that will also affect the developed world, through Libra, Facebook will acess to extensive data regarding all aspects of payments made using Libra across the globe. This data may every well be used or even sold for an even more aggressive and tailored type of marketing. This would represent a step further in the commodification process of our everyday lives.
Of course, it is unlikely that the Libra will result in a dystopian oligarchy where corporations become influential enough to have control over a global financial network, and use this to leverage and pressure governments to do their bidding. And yes, such innovation may improve the efficiency and accessibility of payment methods. Yet, nonetheless, the Libra represents the opportunity to give a, for the most part, unregulated institution access to our personal data and finances. The potential dangers that this poses to our privacy and financial instititions should not be underestimated.
Edited by Emma Massucci Templier.
The opinions expressed in this article are solely those of the author and they do not reflect the position of the McGill Journal of Political Studies or the Political Science Students’ Association.
Featured Image by Marco Verch via Flickr Commons