To co-opt a phrase made famous by the late Saddam Hussein, Facebook’s scheme to create its own digital currency for global use could be described as “the mother of bad ideas.”
Fraught with legal and privacy questions, the company’s recent announcement it will roll out a cryptocurrency called Libra sometime next year has prompted cries of alarm from members of Congress, international finance officials and anti-monopoly advocates.
As well it should.
Facebook already rules and censors daily communication for more than 2 billion people around the planet, and now it wants its own currency – something that has the potential to threaten banks, national currencies and further erode the privacy of users.
Libra is a form of digital cash that uses encryption technology. It doesn’t exist as physical bills or coins but rather as lines of digitally signed computer code. Records of cryptocurrencies like Bitcoin are typically kept on ledgers known as blockchain. It essentially would be available to anyone with a smartphone willing to set up a digital wallet for Libra.
Facebook says Libra would differ from other cryptocurrencies in that its value would be pegged to existing currencies like the dollar or the euro. The company says it would be a way to send money across borders without significant fees and would open online commerce to people around the world who don’t have bank accounts or credit lines. In short, Facebook and partners including PayPal, Visa, Mastercard and Spotify would love to control global commerce.
A separate company called Calibra would be set up to run the cryptocurrency, and people would be able to buy Libra online or through exchange locations around the world.
Which brings us to French Finance Minister Bruno Le Maire, who argues correctly that only governments can issue sovereign currencies and that Facebook must ensure Libra won’t hurt consumers or be used for illegal activities. “We will demand guarantees that such transactions cannot be diverted, for example for financing terrorism,” he says.
That’s a role for government, not Mark Zuckerberg and his partner CEOs.
Rep. Maxine Waters, D-Calif., chair of the House Financial Services Committee, wants Facebook to suspend plans for the new currency until Congress and regulators can study it more closely. She says Facebook is “continuing its unchecked expansion and extending its reach into the lives of users.”
Sen. Sherrod Brown, D-Ohio, and ranking Democrat on the Senate Banking Committee, says Facebook’s new digital currency will give the tech giant unfair advantages in collecting data on financial transactions as well as control over fees. “Facebook,” Brown says, “is already too big and too powerful.”
Undeterred, Facebook has given no signs of slowing down and says it will happily address all concerns as the process moves forward – even though the company is already under federal investigation over its privacy practices and along with other tech giants faces an antitrust probe in Congress. Some analysts believe Zuckerberg wants to create a U.S. version of the Chinese service WeChat, which combines social networking, messaging and payments in a single app.
Facebook is “going to get access to a lot of financial data,” analyst Aurelie L’Hostis says. “What are they going to do with that information, and what are they going to put in place to safeguard that information?”
On the flip side, experts point out privacy is the enemy in the battle against money laundering and other crimes. Obviously we can’t count on Facebook/Calibra to self-regulate. Will governments around the world find a way to regulate Libra piecemeal?
Sarah Miller, deputy director of the Open Markets Institute, which advocates against monopolies, says it would be “insanity” to trust Facebook to launch a global cryptocurrency when it is already facing regulatory scrutiny around the world over data privacy. She adds the Federal Trade Commission “needs to rein in Facebook” before it “puts our financial information and currency systems at risk, too.”
Putting the brakes on this “mother of all bad ideas” is something the Trump administration and Democrats in Congress should be able to agree on. They should move aggressively to do so.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.