Libra - Big brother is credit you
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19 June 2019
Posted in
Woolly thoughts (blog)
Facebook has announced that it will establish a new blockchain-based currency from 2020. This is called "Libra" and is intended to bring new freedom in payment transactions, especially where there is no good bank supply so far. We discuss what the new currency lacks to be successful.
Fiat system's weakness fires Cryptos
The current flight of Bitcoins, who coped surprisingly well with their "bubble descent" in 2018, shows that people are looking for an alternative to the current monetary system. In times of massive credit deterioration, the banks are just as untrusted as the central banks of the ruling Fiat money system, which are increasingly at their wits' end with their Latin - i.e. money printing. In the fight for the debt sustainability of over-indebted states, the next bastions are likely to fall soon.
The "balance"
In this environment, Facebook's attempt to enter the banking business itself with a new crypto currency does not seem badly chosen. The project is named "Libra", which stands for zodiac sign "balance" and refers to equal opportunities for all those who do not yet have good access to banking services, is to be launched in 2020 (for further details see https://libra.org).
Libra should be mapped like Bitcoin by a blockchain. However, this is to be managed centrally, which on the one hand will enable faster payment processing. On the other hand, Facebook becomes the "master of data" as the central instance. The essential advantage of Bitcoins, for example, in ensuring decentralised and thus largely unrestrictable tradability, is thus replaced by a "point of trust" - Mark Zuckerberg's data empire. Facebook can rely on the enormous number of users on Facebook, Whatsapp and Instagram. This could give the project a promising start.
Orwell's nightmare
However, data protectors and all those concerned about a surveillance state are likely to be miles away from Libra. Because Facebook would not only have insight into all transactions, but would also be able to control money flows in addition to the opinion. A very strange idea.
But there are also design reasons that cast doubt on the sustainable success of Libra.
Reserve currency
Libra should not be exposed to major price fluctuations. This is because Libra is not designed as a real currency but as a unit of account linked to a basket of currencies and short-term money market instruments. Money that is "deposited" into Libra should be kept in reserve. This corresponds roughly to what the crypto currency tether is. Unlike Tether, Libra is not linked 1:1 to the US dollar, but to a basket of different assets. These can fluctuate. The returns from short-term investments are intended to cover costs and flow as dividends to the founding investors. A nice business has Zuckerberg in its head.
However, through this measure Libra is linked to the traditional money and banking systems. This does not correspond to the ideas of those users who are looking for a genuine currency alternative.
Access for disadvantaged people
Libra promises to provide payment services to those who have so far been denied or made more difficult access. This applies, for example, to US Americans, whose banking system can only be described as backward when it comes to payment transactions and cross-border payments. No comparison, for example, with EU-wide payment transactions via IBAN and Co.
In the USA, it should not be difficult to exchange US dollars for Libra either. The situation is different where there is hardly any banking infrastructure to date. The decisive point for every crypto currency is the inflow and outflow of the crypto currency into the existing system of state-run monetary systems. Capital flight to the Bitcoin, for example, is only possible where there are no restrictions on capital movements.
It is likely that Libra, due to the high presence of Whatsapp and Co. on mobile devices, will rely on collaborations with telecommunications service providers to provide large scale Fiat money exchange in Libra. But why a user should use Libra instead of ApplePay, GooglePay or Paypal remains to be seen.
Killer app?
As stated above, Libra lacks a truly revolutionary feature to be a real alternative to existing payment systems or Bitcoins. However, there would be a feature that could give Libra an enormous boost. And that would be if one could also obtain loans in Libra that would possibly be uncovered in the sense of a partial reserve system.
Is Zuckerberg ready for this? As a private company he would have to "back" Libra and throw the financial power of Facebook into the balance. If you could borrow in Libra, the game would change completely. None of the existing crypto currencies can offer this feature. The enormous size of the Facebook network and the financial strength of Zuckerberg's empire could make this possible for the first time. In addition, Facebook has intimate knowledge of its users, which would probably provide a better insight into habits and creditworthiness than any conventional bank - Big brother is credit you!
Bottom line
Libra in its present form is an unnecessary vehicle in a financial world in upheaval. An additional billing unit from a less trustworthy company does not need a human being - blockchain back or forth. But if Zuckerberg goes one step further, he could produce a Gamechanger. We should keep an eye on that. And if he doesn't, sooner or later someone else will - "amazing".
