Pixel Envy

Written by Nick Heer.

Consortium Led by Facebook Announces Libra, a Digital Currency

Charlotte Jee, MIT Technology Review:

Libra will be available for Messenger and WhatsApp users around the world, and anyone who downloads the (yet-to-launch) app. Facebook says it has the lofty goal of bringing financial services to the 1.7 billion around the world who still don’t have bank accounts. Libra will let you send money to almost anyone with a smartphone, as easily as a text message and at “low to no cost,” Facebook says.

The Libra team will be governed by a nonprofit foundation called Calibra, based in Switzerland. Facebook already has backing for the project from 27 organizations, including Uber, Visa, Spotify, Vodafone, Mastercard, and nonprofit Women’s World Banking. Each of these partners has agreed to invest at least $10 million in the project.

Mike Isaac and Nathaniel Popper, New York Times:

Initially, the Calibra subsidiary will offer little more than a wallet to hold and spend Libra. When Libra is released next year, the plan is to make the wallet available to the billions of people who have accounts with Facebook Messenger and WhatsApp.

If Libra catches on, company officials said, Facebook’s Calibra could offer financial services to customers, such as lending and investing.

To spur adoption, the Libra Association, which will manage the digital token, will help offer financial incentives to merchants and customers, like free Libra for opening a wallet, or discounts on Libra transactions for merchants who accept the currency.

Siva Vaidhyanathan, the Guardian:

The long game here is one for which Facebook has long been preparing. There is only one other service in the world that threatens Facebook’s global domination. WeChat, a social network primarily used in China, has offered popular payment systems for many years. In China, one must use WeChat for many transactions. If WeChat moves beyond its current market and challenges Facebook globally, Facebook better had offer a similar, perhaps better payment and money transfer system. Building on the vast market for remittances is the obvious way forward.

In a shocking twist of events here, I’m not particularly worried about privacy implications. Facebook has adequately convinced me that it’s not treating this as another surveillance experiment. Nor am I specifically troubled by Facebook having any power over this currency — there are twenty-six other companies with equal voting power. But I am deeply concerned by how much power this gives a consortium with power far exceeding its expected responsibility. I’ve been thinking about this in two different ways:

  1. Let’s pretend that it’s not a currency, but is instead effectively a competitor to PayPal or Apple Cash: an escrow service for money sent through its proprietary channels.

  2. Let’s pretend that it has nothing to do with cryptocurrencies generally and consider it a private currency in the vein of a scrip.

Neither one sounds appealing to me given the inherent power of a backer with over two billion users. For comparison, PayPal has a couple hundred million users; Apple Cash is limited to a U.S. audience, and is effectively a bank card on the back-end. Both are little more than a temporary holding place for money. But Facebook’s power means that Libra funds could be more widely traded and accepted as their own currency, despite being privately-backed by a couple of dozen companies.

What’s more, targeting people in developing nations sounds noble and could be genuinely useful, but it also smacks of neocolonialism. What happens if this currency fails to gain adequate traction? What happens if it succeeds in gaining traction, and now small, local economies in developing nations are dependent on venture capital firms and credit card companies in the United States for their functional base of trade?

I get the eagerness to disrupt something as big as the global financial system. But you don’t have to trust the system to worry about a small consortium of mostly-American companies inventing a private and poorly regulated psuedo-currency.

Update: Max Read, New York magazine:

[…] Facebook’s biggest problem right now — the problem that lurks behind stagnant user growth in Europe and North America — is that it’s just not essential. Like any megaplatform, Facebook wants to be infrastructure: a service so important to daily life that most people have no choice but to use it. But Facebook in 2019 is increasingly easy for Americans and Europeans to quit without particular consequence, in a way that Google, say, isn’t.

Libra could, if it takes off, change that. Payment infrastructure isn’t just (potentially) more lucrative than social infrastructure, it’s much less easy to replicate, either on the business side or on the consumer side. It’s pretty easy to quit Facebook, the app where you fight with your childhood neighbor about politics. It’s much more difficult to quit Facebook, the app you use to pay your rent.

Or, potentially, the app you get paid in.