Facebook Money
- This topic has 37 replies, 7 voices, and was last updated 5 years ago by
.
-
Posts
-
Not sure but this seems a departure from Bitcoin that is priced as a very specific particular commodity.
Facebook says it will “peg its value to a basket of established currencies, including the US dollar, the euro and the Japanese yen.” making it sound like a stand alone currency.
Those more versed in economics can perhaps clarify things for me.
Yes, it seems to be more of a “stablecoin” than the original bitcoin idea as a currency that had nothing to do with the state. Because its price fluctuated so much bitcoin was never really going to be used as an ordinary means of paying for goods and became more a speculative “crypto asset” than a “cryptocurrency” (crypto referring to the blockchain technology it was based on). To work as a means of payment, crypto-cash needs to be stable and tying it to state-issued money (whether a single one such as the dollar or a basket of them as Facebook seems to be proposing) is ta way of doing this. As far as the US-style libertarians are concerned, this — tying a so-called cryptocurrency to state-issued money — must seem a betrayal of their original project. Actually, it represents the failure of their attempt to by-pass the state and its money. What was the point of that anyway?
Libra
Facebook executives claim the Libra system will help the many millions of people without bank accounts but with access to mobile phones to enter the banking world and to more seamlessly send money.
Unlike bitcoin and other cryptocurrencies, Libra is tied to a mix of global assets to prevent the level of volatility common in the digital currency space. Facebook built the currency on its own blockchain technology – the encrypted technology used by bitcoin and other cryptocurrencies – in order to scale to more users more quickly. Libra’s blockchain will be closed, and only a select number of people will be able to run the software that powers it and verify transactions.
There’s an article in today’s papers which says that some people see this as “a jazzed-up payments system rather than a genuine alternative to sterling or the dollar.” That seems a fair assessment.
But whatever it is what it will do as a side-effect is that more people will get used to not using physical money, a prospect which is already worrying some supporters of capitalism, as this news item from the i paper of 15 June shows:
“Cashless society’s risk to children
Large numbers of children in Britain could grow up struggling with “financial illiteracy” if the UK becomes a cashless society and does not educate children on the concept of paying for things, a maths professor has warned.
Many children are failing to grasp the concept of exchanging money for goods because they have never seen their parents or carers handing over coins or notes to a cashier, warned Dr Jennie Golding, at the UCL Institute of Education.”
Risk? Warned? Bring on a society where everybody is financially illiterate !
I was brought up with the money alternatives were Green Shield and pink stamps….all the big shops and petrol stations issued them.
And of course cigarette coupons. Many an hour was spent counting those up and bundling them in hundreds. More often than not they we exchanged for hard cash at the corner shop.
And of course bottles were collected and returned for the thrupenny deposit so they too were a form of money for us kids…long before the days of recycling.
We also had our co-op divvy number to memorise and utter parrot fashion when sent to the shops.
Financially literate we wuz back in those olden times.
But I wonder about the astrological link with Facebook…surely a sign of demons and warlocks behind it all. Why aren’t the fundamentalists up in arms about this root of all evil?
Could Facebook money be the first steps on the slippery road back to company script and truck-shops?
Ellen Brown’s article has been doing the rounds of the “progressive” websites.
Ed Conway, Sky News’s Economics Editor, raised something similar in the Times last week, though he doesn’t go for Ellen Brown’s idea of a “democratised central bank” instead. Unfortunately, the article is behind a pay wall but you can get some idea from the title:
https://www.thetimes.co.uk/article/facebook-currency-will-help-it-rule-the-world-5ttrsbm0k
Conway argued that, since they would have to pick up the pieces if the scheme goes wrong, national governments would normally move to squash it but, apparently, they are not and goes on to ask why the Bank of England is so relaxed about it. He answers:
“The first reason is that the existing system for transferring money internationally is rubbish. Moving cash from one country to another involves painful paperwork, high fees and long waits … The tech giants have spied an opportunity and the existing banks have only themselves to blame. The second reason is more disconcerting. Privately, the Bank doesn’t think libra is a currency after all. Instead it is something quite different: a jazzed-up payment mechanism rather than a genuine alternative to sterling or the dollar.”
Personally, I’m inclined to agree with the Bank. I don’t see states accepting an alternative currency they can’t control, but a more efficient efficient international payments system, why not? But we’ll see.
The head of the Bank of International Settlements (the Switzerland-based central banks trade association), Augustin Carstens, had told the Financial Times that central banks may shortly have to issue their own digital currencies in response to the emergence of private digital currencies, specially Facebook’s Libra. This would suggest that what is being envisaged, by both Facebook and them, is a more efficient system for international payments.
Some more discussion on what the author has called facebucks
https://www.commondreams.org/views/2019/07/01/facebucks-are-last-thing-world-needs
“…the key questions: Is Facebook introducing the first money in the world that is not backed by a sovereign or a sovereign state? Or is it a giant scam to launch a bank unfettered by any regulation? Or currency controls? Can states that allow Facebook to do so still control the money side of their economy?…”
Interesting but
- I don’t see why he says other states than the USA won’t be able to impose controls on Facebook money. After all, he himself points out that Facebook is banned in China. Also, the EU is planning measures against it and the other US tech giants.
- No extra money will be “created” (not even in the sense modern economics misuses it). People will only be transforming state money into Facebook money. This could cause problems for states with weak currencies but this would be one of the things they could at least try to regulate as they do now with Paypal, etc., as for instance by requiring banks to report such transactions and/or placing limits on the amount transferred.
” the first money in the world that is not backed by a sovereign or a sovereign state”
The author clearly has not read up on the history of money, merchant backed promissory notes in 11th Century China, being just on example of money that wasn’t backed by the sovereign or the state,
Another piece to read.
https://www.commondreams.org/views/2019/07/02/thumbs-down-facebooks-cryptocurrency
“…the new Libra currency’s value will be fixed in terms of a global basket of currencies and 100% backed – presumably by a mix of government treasuries. So here’s another possible source of revenue: paying no interest on “deposits” (traditional currencies exchanged for Libra), Facebook can reap an arbitrage profit from the interest it receives on those “deposits.”…”
Joseph Stiglitz is a more or less mainstream pro-capitalist economist (rather than a leftwinger with an axe to grind) and he has a valid point when he says that there is no need for Facebook money in a national context since electronic payments within a country like the US are already simple and instantaneous. But the proposal is to introduce a similar system for international payments to replace cumbersome methods like Western Union which involve form filling and are not instantaneous. Migrant workers sending money to their country of origin would benefit from such a system irrespective of who organises it.
As to the two points he raised that you highlight, here’s what the Facebook “White Paper” says on them:
“Libra is fully backed by a reserve of real assets. A basket of bank deposits and short-term government securities will be held in the Libra Reserve for every Libra that is created, building trust in its intrinsic value.”
In other words, no new money is created. It will be like local currencies here in the UK which have to keep the equivalent in pounds in a reserve to cover the total face value of the local currency notes they issue. This strengthen the case for the view that what is envisaged is a new international payments system rather than some world currency to compete with existing state ones.
“Interest on the reserve assets will be used to cover the costs of the system, ensure low transaction fees, pay dividends to investors who provided capital to jumpstart the ecosystem, and support further growth and adoption. The rules for allocating interest on the reserve will be set in advance and will be overseen by the Libra Association. Users of Libra do not receive a return from the reserve.”
This is clear/honest enough: Facebook and the other investing corporations which include Paypal, Visa and Mastercard which put up the capital to start the scheme (listed here) will get interest on the money used to back up the Libra but will not pay any interest to those who will contribute to this by using it. The business model is similar to that of a bank in that income will be from interest and fees, with profit being this less costs.
Stilgitz’s point about Facebook being able to “reap an arbitrage profit” on its reserves deposits is true but this is what banks (and not just banks but any organisation with money reserves) do now.
I’m coming to the conclusion that this is all a fuss about nothing.
- You must be logged in to reply to this topic.