https://www.linkedin.com/pulse/shocking-reason-us-wants-stop-facebooks-libra-thijs-maas/
> If you haven’t heard about Libra yet, it's about time. The recently announced > digital currency from Facebook has been in the news everywhere. The recently > unveiled coin, which is held stable by backing it with other currencies and > debt obligations, might cause significant changes in the financial system as > we know it. Now, it might be stopped to a halt. > > Yesterday, the US House of Representatives send a letter to Mark Zuckerberg > and his associates. In the letter, they call for Facebook to put the > development of Libra to a halt. > The letter, which was sent by the House’s Committee on Financial Services, > amongst other things states: > >> “…it is imperative that Facebook and its partners immediately cease >> implementation plans until regulators and Congress have an opportunity to >> examine these issues and take action. During this moratorium, we intend to >> hold public hearings on the risks and benefits of concurrency-based >> activities and explore legislative solutions. Failure to cease >> implementation (of Libra) before we can do so, risks a new Swiss-based >> financial system that is too big to fail.” > > So why are lawmakers trying to stop Libra? > > Why Libra is a threat > > To understand why lawmakers should be investigating Libra, we should first > understand Libra itself. > > Libra is a simple idea, with great consequences if successful. It might > change the face of money as we know it. > > Money has, until the rise of decentralized cryptocurrencies, been an > instrument of the state and central banks. Never before had a company decided > to just start issuing money of their own. Until now. > > Libra is issued by Facebook, in cooperation with many other large global > corporations, such as VISA, Mastercard and Uber. It is a coin that can be > bought for any regular currency. The more stable currencies ‘back’ Libra: > they are held in bank accounts to ensure the value of Libra does not > fluctuate too much. > > > In other words, you can sell Libra back and receive its exchange value (which > should be similar to the amount of money you bought the Libra for). > Meanwhile, the Libra’s value should become very stable, as many different > currencies are used to buy it. > > Anyone in the world would be able to store their Libra on their phone or an > online wallet, and use it instantly from anywhere. You will be able to send > Libra to your friends via Whatsapp and messenger and use it in stores. Those > in the third world without a bank will suddenly have access to a financial > system to store money for a rainy day (or, a hot day). > > With billions of people that don’t have banks, but increasingly get phones > and internet, this is a huge opportunity. Don’t forget that Facebook is > increasingly the one providing them with internet (for free). > > That’s all great, so what’s not to like? > > The obvious answer would be that facebook is a known troublemaker. They don’t > respect people’s privacy. Cambridge Analytica was a disaster, and yes, it > might have had a significant impact on the election of Trump. > > But that’s not actually what the U.S. are most concerned with. > > If Libra is successful, it would make Facebook (or better said, the > underlying Swiss Association of all involved companies) incredibly powerful. > > A Shift in Power > > There’s an aspect to Libra that many overlook. Libra is in competition with > the US dollar. There are two incredibly important aspects to this: > > • The U.S. dollar is the world’s ‘reserve-currency’, and is held by > other government in their reserves as it is a stable currency that they know > will retain its value. > • The money used to buy Libra is not just retained in a bank. It is > also used to buy debt obligations that are issued by states. > If Libra is successful, it makes sense for countries to hold Libra in its > reserves. Indeed, Libra would compete with the US dollar. > > Currently, the way the U.S. dollar functions as the world’s reserve-currency > is as follows: Foreign governments usually don’t choose to hold dollars > directly. Instead, they buy U.S. Treasuries (which is U.S. debt). This is > incredibly important for the U.S., as it helps the government fund its > budget. A total of $16 trillion of such U.S. Treasuries is outstanding. This > is about 4 times the total amount of cash that’s circulating. And foreign > governments hold about 39% of this debt. > > Myles Milston of Globacap describes this all far better than I ever could, > and I highly recommend reading his take on Libra. The takeaways are this: > > • Foreign governments are of crucial importance to the U.S. and they > have to keep buying U.S. government debt, or the U.S. deficit will spin out > of control. > • If they don’t, the interest rates the U.S. government has to pay to > borrow money will go up, making it more expensive to get loans and making the > government’s budget deficit increasingly worse. > If foreign governments decide to hold Libra instead of buying U.S. > Treasuries, the U.S. is in for a long night. > > > The above image shows the amount to US Treasuries transactions by foreign > governments. Since 2014, U.S. Treasuries have had a bad time. > > Now, if you paid attention, you might say: “but Libra is planning to use the > money they receive from users to buy debt from governments! They could use > their money to buy U.S. Treasuries!”. > > You’d be right. They could. They could buy debt from governments and ease > their budgets. However, the Libra Association is free to spend the money it > receives in any way it wants. So it could also, you know, not buy U.S. > Treasuries and not even hold U.S. dollars. > > In other words, if Libra is wildly successful, it would get insane bargaining > power against governments across the world. It might cause a shift in > macroeconomics as we know it. > > Let’s say Libra would be out to displace the US dollar as the global reserve > currency. Libra could potentially negotiate with other governments as > follows: “We will buy your debt as collateral for Libra, if you hold Libra as > a reserve currency instead of dollars or U.S. Treasuries.” > > This would be a great proposal for a smaller government. They we be assured > that (1) they would be putting their money into something that’s very stable > (2) their money would meanwhile be used to buy their owned debt, which eases > their budget and ensures they can lend more money while paying less interest > and that (3) they will not get hurt by (probable) inflation of the US dollar. > > Of course, you don’t know for sure if the U.S. would be forced to start > printing more money to fix its budget. But in terms of game theory, the > dominant strategy would be to agree with the proposal. > > Alternatively, the Libra Association might also negotiate to obtain unfair > benefits in certain countries against their competitors. They could buy a > state’s debt in return for required licenses, resources or other rights. > > Note that I am not saying they will do so. I am saying it is a possibility. > Regulating Libra > > If what I described here plays out, Libra might cause a substantial > disruption in the way money works. It might have insane consequences for the > U.S. dollar or macro-economic policy in general. It might even make the > corporations in the Libra association too big to fail, all while not even > being regulated! > > Even when you leave aside that Libra will get insane amounts of insanely > valuable financial data, and even when you ignore Facebook’s issues with > privacy in the past, it makes sense for politicians and regulators to start > asking questions. > > If you are tasked with ensuring market stability and integrity, and > regulating the financial services ecosystem to ensure this, wouldn’t you ask > questions? Wouldn’t you want to know Libra’s policies and plans beforehand? > Wouldn’t you want to regulate a party so known for abusing the trust of its > users, which is on the brink of getting so much more data? Wouldn’t you want > to at least get a chance to think about how to regulate privately-issued > money governed by a cartel of the most powerful companies in the world? > > So, what now? > > Sure, lawmakers asked for Facebook to stop development of Libra completely. > However, this is just rhetoric. They can’t actually stop Libra by asking them > to ‘cease and desist’ without any legal basis. However, they can make some > really onerous legislation if Facebook doesn’t work with them. > > They want to ask questions before congress. They want hearings and they want > to learn more. They want to evaluate the risks in terms of financial > stability, politics and macroeconomics and they want to regulate in case > these risks require them to do so. > > So why is the U.S. trying to stop Libra? > > They aren’t really. The U.S. lawmakers are just doing their jobs. -- Kim Holburn IT Network & Security Consultant T: +61 2 61402408 M: +61 404072753 mailto:[email protected] aim://kimholburn skype://kholburn - PGP Public Key on request _______________________________________________ Link mailing list [email protected] http://mailman.anu.edu.au/mailman/listinfo/link
