What Was Missing From Facebook’s Congressional Hearingsbr>
The Senate Banking Committee had strong words last month for Facebook’s effort to create its own cryptocurrency, Libra. However, it seemed that the committee was more interested in Facebook’s past foibles and not how Libra is responding to the future of commerce. Of course there are concerns around Libra as Facebook’s user base has eclipsed practically every other platform on the planet, and the company’s history around privacy has been downright disastrous at times. Perhaps the real concern is that the Libra Association isn’t democratically elected, and its future monetary policy would be determined at the discretion of foundation members. This lack of control is something that concerns some members of Congress.
Libra’s pitch as a stablecoin, backed by a bundle of low-volatility assets, will be supported by some huge players, namely Mastercard and Visa — hence the concern by Congress about creating a second money system outside its purview. Libra’s user base would theoretically be the same as Facebook, but in another recent Congressional hearing, expert testimony pointed out the global concern, as G-7 finance ministers and central bank authorities raised the specter of regulation-free cryptoassets. Compounding this concern were comments by David Marcus, the man in charge of Libra, who dodged the committee’s questions as to whether money should be considered a public good. After all, if money is a public good, it should be operated by representatives elected by the public rather than private organizations.
By contrast, Marcus could have said money should be treated as a natural resource. Bitcoin does this, with its strictly defined rules. What regulators should be more concerned about, perhaps, is that Libra is a discretionary system whose purpose and policy could change, just as it does with sovereign currencies. If a small group of people want to double the number of Bitcoin tokens, they’d have to fork the network and call it something different. Bitcoin’s supply policy is the very core of its definition.
There’s no question Facebook’s announcement spurred a huge rise in interest for all cryptocurrencies. It’s perhaps a stepping stone towards everyday people asking questions about money and considering cryptocurrencies as an important part of the monetary ecosystem. This awareness could lead to positive advancements, but it’s important to remember Libra is really evolutionary and not revolutionary. It doesn’t address the conflict between national political interests and international economic interests afflicting reserve currencies today. These problems may not even be solvable without blockchain technology. The very financial crisis that catalyzed Bitcoin was a problem that affected the banked, not the unbanked.
As a result, governments and banks appear to be looking at Libra as a systemic risk to their ability to influence employment and output through monetary policy. Obviously private banks compete, but with cryptocurrencies the trust isn’t with any one particular entity. The choice is based on the system of rules you adhere to, which are clear no matter the size of the currency.
If a cryptocurrency starts small and grows to mainstream adoption, that’s a sign of trust and reliability.
Systems like Alipay and WeChat are thriving examples of trusted resources. Regulators may conclude that inhibiting Libra just opens up market opportunity for other actors who could be more difficult to regulate. One hopes that Libra could hold politically disconnected base-monies in reserve. Perhaps it could even collateralize with Bitcoin, but the history of gold has already shown that constructing a banking system on top of a fixed supply asset is a mistake we’d be foolish to repeat. It’s as yet unclear what regulators will choose to do, but one hopes they will provide more choices to consumers and allow innovation to flourish in this critical emerging asset class.