by Ralph Benko
Facebook has introduced a new cryptocurrency, Libra. Per Quartz, “The name was inspired by the origins of money in Ancient Rome, where the Libra was a unit of weight used to mint coins, according to a Facebook spokesperson.”
Mark Zuckerberg doesn’t have a monopoly on moving fast and breaking things. Rep. Maxine Waters (D-Calif), chair of the House Financial Services Committee, promptly called on Facebook to “agree to a moratorium on any movement forward on developing a cryptocurrency until Congress and regulators have the opportunity to examine these issues and take action.” And then scheduled a hearing. The Senate Banking Committee also announced a hearing.
Meanwhile Libra’s unveiling coincided with a continuing bull market in Bitcoin and other cryptos. What’s really going on?
The Libra White Paper states:
“This is the goal for Libra: A stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.
“Our hope is to create more access to better, cheaper, and open financial services — no matter who you are, where you live, what you do, or how much you have.”
As for its reserve of real assets:
“Instead of backing Libra with gold, though, it will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.”
Who’s running the show?
“This governing entity is the Libra Association, an independent, not-for-profit membership organization, headquartered in Geneva, Switzerland.”
I’d been anticipating something like this by Facebook ever since bigfoot journo Morgen Peck wrote “Let’s Destroy Bitcoin” in MIT Technology Review . She thought Bitcoin was ripe for a takedown by socialist, anarchist, or capitalist means. Or, as Ms. Peck put it: by government takeover, proliferation of white label cryptocurrencies, or a Facebook “sneak attack.”
I’m a co-founder of one of Libra’s most elegant rivals, Decentral Technologies, of which Stephen Moore is chief economic officer. And I am a connoisseur of capitalism. Thus, I thought the Facebook scenario most likely. Peck:
“Facebook could pull off a takeover before most people even realized what it had done. If you’re reading this, Mark, here’s how to do it.
“First, spend a month building a user-friendly, secure, Facebook-hosted Bitcoin wallet. …
“Then, overnight, integrate it into every single Facebook account — all 2.2 billion of them … The wallet eliminates all the wonky quirks that make other Bitcoin wallets confusing. …
“Now let your users absorb these remarkable new tools into everyday life. Give them time to delight in the ability to send money instantaneously over Facebook to any of their friends on the global platform.
“Then take control.”
Prophetic. Except — contrary to the caricature of him as Brain, intent on world conquest, from Pinky and The Brain — Zuckerberg renounced control at the outset.
Will Libra become “a simple global currency” and maybe even supplant the dollar? Or is it more of a “financial infrastructure,” Paypal 2.0? Or both?
Will it take hold? The IMF’s Special Drawing Rights — also a basket of currencies — hasn’t amounted to much. Hiroshi Watanabe, president of the Japan Bank for International Cooperation, dismissed SDRs as the “Esperanto” of money.
Crypto guru Matt Levine shrewdly observes at Bloomberg “If you mostly spend dollars, and Libra is always going up and down against the dollar, that will be annoying and you won’t want as many Libras.” Prof. Barry Eichengreen sounds the same alarm. Will this “basket of currencies” turn Libra into a monetary Myspace?
Yet might it be beneficial for a cryptocurrency to supplant the dollar? Keynes and Hayek — spanning the ideological spectrum — foresaw the serious problems from making the dollar the world’s reserve currency. Crypto to the rescue of America from its reserve currency “exorbitant privilege,” anybody?
Also, Congress doesn’t have the juice to do this justice. Congress long ago delegated its Constitutional power to regulate the value of money to, in theory, the Fed (in practice, the president). Congress doesn’t grasp the occult arts of monetary policy.
Meanwhile, federal regulation of crypto has been woeful. America’s dueling agencies play regulatory ping-pong with crypto. ( It’s a security! No, it’s a commodity! No, it’s currency! ) This discombobulated regulatory environment threatens to derail America’s tech leadership.
As columnist Peter Roff has pointed out at I&I, China explicitly covets that leadership. What if the early Web had faced such a conflicted American regulatory climate? Google might have emerged in Switzerland, Facebook in Singapore, Amazon in Israel.
Driving thousands of good jobs and many billions of dollars from here to Shanghai is bad policy.
So what to do?
First, let Congress invite its regulatory agencies to come up and explain themselves.
Second, follow Bank of England governor Mark Carney’s counsel on Libra: keep an open mind.
Third, welcome a maturing Facebook’s showing that it knows how to move fast and make things. Welcome, Libra.
Crypto has arrived.
Ralph Benko, founder of the Prosperity Caucus, former Reagan White House deputy general counsel, former Senior Counselor to the Chamber of Digital Commerce, is general counsel to Decentral Technologies, a developer of blockchain stablecoin software in the cryptocurrency space.