What has Libra got to do with a dystopian future? Chances are, nothing. Let’s face it, there is every possibility that Mark Zuckerberg has set Facebook an unrealistic goal with Libra.
But suppose they pull it off, suppose that Libra becomes one of the main currencies across the world? What then?
The founder of Openbook, a new social media platform with a bold plan to take on Facebook, says “entrusting them (Facebook) will be a mistake.” Joel Hernandez told Information Age that this “will set a clear path forward to a dystopian society.”
Well, it is tempting to say ‘he would say that, wouldn’t he?’ Openbook’s business model is one that puts privacy and trust at the core of the product, makes no money from advertisers, but instead will generate revenue from a trading platform using a cryptocurrency.
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Facebook doesn’t seem to be too keen on the idea, and has even demanded it drops the word ‘book’ from its name.
Hernandez based his prediction about Libra leading to a dystopian future on what he calls Facebook’s “lack of ethics, secrecy, disregard for society and hypocrisy.”
Or to put it another way, he doesn’t seem too keen on Facebook.
It’s a curious thing, but since the Cambridge Analytica scandal broke in the first few months of 2018, the Facebook share price has done okay. In fact, while the share price fell sharply after the story broke, within a few months it hit an all time high. Anyone who had bought shares in Facebook a few weeks into the media feeding frency that was Cambridge Analytica, would be sitting on a very nice profit right now.
Facebook’s persona may have taken one big knock, the question of whether the public could trust the company dominated news headlines, yet the money came pouring in.
To try and grapple the challenge of its public image, the company has even hired the former British Deputy Prime Minister, Nick Clegg, to work as its PR man.
But what about Libra?
Central bankers are concerned. The governor of the Bank of England, Mark Carney, has warned that Libra would have to be subjected to the highest standards of prudential regulation.
On the other hand he was not anti it either, and talked about it improving financial inclusion and lowering the costs of cross border payments.
The Bank for International Settlements (BIS), sometimes known as the world’s central bank, seems to be more vexed on the issue. The bank’s head honcho, Agustin Carstens, recently told the FT that “regulators need to ensure a level playing field between big techs and banks, taking into account big techs’ wide customer base, access to information and broad-ranging business models.”
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So one fear is that somehow Facebook will lord it over the poor helpless banks, creating an uneven playing field!
Libra will actually be backed by a basket of currencies, which can be good or bad. If you are paid in dollars, and the dollar loses value, then buying and then trading Libra’s will become more expensive. On the other hand, because of the way the Libra will reflect the value of multiple currencies, it should smooth out international transactions.
In this way, the Libra has similarities with an idea that economists have often favoured, conducting international trade using a mechanism based on a basket of currencies, whereas, at the moment, most international trade is conducted in dollars.
The IMF already has a similar mechanism, called special drawing rights. In the past, China has called for all international trade to be conducted using special drawing rights. Even the great economist, John Maynard Keynes, advocated a similar concept, back in 1944 at Bretton Woods, when he outlined his plans for a currency he called the bancor. His proposal was rejected, and the IMF and World Bank were formed instead, as a compromise between the US and British.
So, in a way, the Libra is not so much heralding dystopia as holding similarities with ideas that the finest minds in the economic world have considered in the past.
But there is another issue with Facebook’s idea and that really does take us straight to to the Libra dystopian warning.
It is not commonly understood, but banks create money. The amount of money they are able to lend is not equal to the amount of money held by customers on deposit, banks can in fact lend whatever they like subject to rules set down by regulators concerning capital requirements.
One potential risk is that Libra could strip central banks of their ability to set interest rates and create money. Some see this as a good thing, but in a near future, where technology leads to growing inequality, this may be all that stands between dystopia.
Suppose Facebook did that. Suppose it created money. Given its enormous user base, of around a third of the population of the planet, that really could create something quite Libra dystopian about it.
Indeed, others have warned that unless it is properly regulated, Libra could spark off global inflation.
But actually there is another issue, or to be precise, there is an opposite issue. Forget about inflation, worry instead about deflation.
If you believe in the idea of accelerating technology, the number one problem with the global economy in ten years from now might be finding ways to stimulate demand to match potential output.
We have already had a dry run — post 2008, that is why central banks tried to stimulate the economy by creating money to buy certain assets, a policy called quantitative easing.
Indeed, the US suffered a similar problem in the 1930s.
Given their lack of ethics, secrecy, disregard for society and hypocrisy, entrusting them with it will be a mistake that will set a clear path forward to a dystopian society with no privacy and freedom, globally, virtually and physically.
Potential solutions include what is known as a helicopter money drop — an idea first proposed by the economist Milton Friedman and endorsed by the former chair of the Fed, Ben Bernanke — involving the central bank creating money and scattering it across the land.
Another idea being discussed by some is called modern monetary theory (MMT) — in which governments borrow at zero interest, indefinitely and spend whatever they like. Tax policy is then used if an inflationary risk emerges.
Although MMT has its critics, it could be used to fund ideas such as universal basic income, a concept Mark Zuckerberg says he supports.
One potential risk is that Libra could strip central banks of their ability to set interest rates and create money. Some see this as a good thing, but in a near future, where technology leads to growing inequality, this may be all that stands between dystopia. Libra and dystopia could indeed have a future together.
Returning to Joel Hernandez, he said: “Facebook’s Libra currency is their winner takes all attempt at the monetary system of the future. Given their lack of ethics, secrecy, disregard for society and hypocrisy, entrusting them with it will be a mistake that will set a clear path forward to a dystopian society with no privacy and freedom, globally, virtually and physically.
“Our approach is different: transparency, accountability, privacy and collaboration with governing organisms; transparency by making all of the companies activities open for anyone to dig into — source code, planning, infrastructure, community guidelines, revenue graphs, salaries, all of it.
“In regards to technical implementation, Libra basically replaces organisms such as the Federal reserve in the US by itself and other ‘partners’ such as Visa and Mastercard, it’s not the vision of decentralised currency where it’s value is free from any institution. A more realistic term is that it is simply a fake virtual currency such as the ones found in video games. World of Warcraft’s Gold currency for example which is now worth seven times more than Venezuela’s cash.”