A YouGov survey recently revealed that six out of ten voters would not buy a used car from Boris Johnson. Apparently though, 13 per cent would, which proves Abraham Lincoln’s famous dictum that “you can fool some of the people all of the time.” Given Facebook’s announcement that it intends to launch its digital currency – Libra – early next year, perhaps YouGov should have rephrased the question to ask: “Would you buy a used car from Mark Zuckerberg”? From Spring 2020, if Libra proceeds as announced, we will all be able to find out.
Facebook – and its partners (including Visa, MasterCard, Uber and eBay) – intends to create a cryptocurrency which allows users to make purchases or send money to others using its social media networks. According to Wikipedia, which does have a clear and easily digestible definition, a cryptocurrency is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank”(my italics.) Clearly, Facebook has seen the acceleration of China’s cashless society dominated by Alipay (part of the Alibaba Group) and WeChat Pay (part of Tencent Holdings) who between them account for over 90 per cent of all China’s mobile payments, and concluded that this would be a significant new revenue stream.
In parallel, the Chinese government has also been trialling a system in 26 cities, where WeChat will replace traditional state issued security cards with a digital version tied to users’ accounts. This digital version enables (requires) users to provide identification, social credit status, payment records and overall insurance status. Unlike Facebook, which intends to use Libra as the backbone of their transactions, WeChat Pay and Alipay use China’s official currency the renminbi. And for Facebook, this is where the key problem lies.
Libra will be overseen by the Libra Association, a body created by the various partners to serve as the “monetary authority” for the new currency. Strangely, for an association with mainly US-based companies involved, the body will have its HQ in Switzerland. For this project it may create the impression of corporate separation for these companies, but of course Switzerland’s well documented culture of extreme financial secrecy might have had a part to play in this decision too. Under the auspices of this association, Facebook will create Calibra, which effectively acts as the “wallet” where the Libra transactions will take place on Facebook’s networks.
Facebook is a global champion in two areas – building social networks (or buying rivals like WhatsApp or Instagram if they become threats to its revenue) and tax avoidance. It could also be argued that it is also a serial offender at overstating its audiences and abusing its vast tranches of data, but there are quite a few companies who also fit the bill there. With this track record, the creation of Libra will inevitably put it on a collision course with the various sovereign and international bodies whose goodwill or indifference are required for it to succeed.
To avoid confrontation with these bodies, Libra has been described as a “transactional” currency only. In other words, it will not attempt to rival the dollar or euro or be used as debt for example. However, with potentially millions of untraceable financial transactions crossing borders within the Calibra wallet, the inevitable questions about tax and privacy will arise.
In China, the benefit of a cashless society, underpinned by the unique legally enforced conflation of public and private interests, ensures that the ruling party can record every financial transaction. Despite its fine words about reaching out to the 1.7 billion people on the planet who are “unbanked”, Facebook will create a system that will do the exact opposite to China’s. Libra will place itself outside of sovereign controls – albeit while paying lip service to various regional or local regulations.
Unsurprisingly the global elite have already stirred. France’s Finance Minister Bruno le Maire has said that Libra “will be limited to transactions only.” His main concern is the central one of Libra in time becoming a sovereign currency equivalent, able to issue debt. His core argument, and the one that will galvanise the international community to act, is this: “The aspect of sovereignty must stay in the hands of states and not private companies.”
In the 19th century we had Standard Oil versus the US government, in the 21st we now have Facebook (and its partners) versus the G20. For example, the US’s Senate Banking Committee has already scheduled a hearing on cryptocurrency on July 16 entitled: “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.”
After hubris comes nemesis. Facebook is not a country. It does not sit outside of the world’s international order. Its pursuit of revenue at all costs has led it to make a decision that will at last galvanise this international order into focussed – and overdue – action. It has a history of contempt for government bodies – as Carole Cadwalladr pointed out last week, Sheryl Sandberg can attend Cannes, but she can’t be bothered to answer questions from MPs about the Cambridge Analytica scandal. What we get instead in the UK is regular honey-toned updates from Sir Nick “read my lips – no tuition fees increase on my watch” Clegg.
In the first paragraph of War of the Worlds HG Wells writes about “intellects vast and cool and unsympathetic..slowly and surely drawing their plans against us.” He could be describing how our ruling global bodies are stirring, as they grapple with the problem of Mark Zuckerberg. With the notable exception of Margrethe Vestager, the EU’s Competition Commissioner, our local, regional and global rulers have been pitifully slow in their response to the ongoing abuses by Big Tech.
Libra will change this. It takes some skill to attempt something that will range on the one side a company with the history of Facebook, and on the other sovereign states, the EU, the G20, the World Bank and the IMF, amongst others. Libra will not survive the weaponry available to the cool and unsympathetic intellects lined up against it.
Roy Jeans is CEO of Grey Scorpion.