The Libra venture is a marvel of a cryptocurrency idea, but its authority structure seems rather too cryptic. Decentralized management or not, regulators must keep a close watch
Might Facebook CEO Mark Zuckerberg become the world’s central banker someday? It’s not an idle question. The company’s crypto- currency Libra, expected in 2020, bears high odds of success. After all, the social media major owns mankind’s primary interface with the internet. Even if only a small fraction of its 2.4 billion users were to adopt it for sundry purchases, it could emerge as our first truly global currency. Usage promises to be as easy as posting an emoji on FB Messenger or WhatsApp. It can process 1,000 transactions per second, which means it’s actually scalable, unlike Bitcoin and others relying on similar blockchains (widely-shared online ledgers that keep track of activity). To grant people a basic notion of what each unit is worth, the Libra’s exchange value will be held stable, pegged to a basket of top currencies. Users will need no bank accounts for its use and will be free to mask their identities as well. What’s more, there’ll be no service fee, which could save customers plenty of time and money on moving funds across borders. The Libra has been well thought out, clearly, well enough to raise eyebrows all around, even cause alarm. Disruptive, it could well be. But an insurgency against what’s in your wallet, it’s not—at least not yet anyway.
For any currency to attain credibility, its supply needs to be either self-restrictive or anchored in something valuable so that an arbitrary glut does not debase it. In earlier times, gold served the purpose. Today, public trust in the currency’s issuer plays that role. The Libra, though, is positioned as an online token—like a coupon bought at a school fair—that can be bought with regular currency, and will be backed by the corpus thus collected. Every unit sold back will be extinguished, promises Facebook. There will never be more of it zipping around the internet than the actual cash paid for it. The moolah that comes in is crucial to its plans. If all goes well, it’ll form a swelling reserve of money, which could then be invested for its returns to be shared by Facebook and 99 other partners expected to constitute the Libra Association.
This Association, to be set up in Geneva, will run the currency on an equal-vote basis. Its 100 members are to jointly manage accounts, govern Libra’s reserves, and take key decisions. Several online service and credit-card companies have already signed up as associates, and, since each of them would get only one-hundredth of a say, nobody can dominate the system—not even Facebook, as the spiel goes. Given the probe it’s facing for alleged abuses of its monopoly, one can only marvel at this set-up. As for its “pivot to privacy" oath, Facebook says Libra records will be kept apart from social data. But then, this is exactly where the catch may lie. Spending patterns could create the world’s next big data trove, every gigabyte worth infinitely more than its weight in gold. Also, the Association’s structure seems rather too fuzzy for us to rule out any central control of the cryptocurrency. Who owns its software codes? What if it’s tempted to dump its reserve as an anchor? Can no associate ever go rogue, fiddle ledgers and enrich cronies? Countries with capital controls, like India, ought to be especially wary of this project; so also central banks everywhere. On the face of it, the Libra is a splendid idea. But regulators had better keep a close watch.
