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Don’t let Facebook take over the financial system

If nothing stops it, the launch of Libra (Facebook’s private currency) could well become the most profitable operation in history… at the cost of a huge risk to public monetary sovereignty and to Libra’s users.

On June 18, 2019, the tech giant announced its intention to offer its users a payment service associated with its own currency. As many economists have pointed out, this attempt marks a turning point in monetary history: it is the first time that a private currency has ambitions to compete with traditional sovereign currencies.

Finance Watch’s ongoing campaign on this subject highlights the most important issues we would have to face if such a currency was to emerge. Among other risks (see our analysis), the introduction of the Libra, with its potential to attract several trillion euros in deposits, would pose an immediate systemic threat to financial stability.

The apogee of Too-Big-To-Fail

Finance Watch Don’t let Facebook take over the financial system

“Too-big-to-fail” institutions were the root cause of many ruinous rescue plans during the 2007-2009 crisis and pose a major risk to public finance.

If created, Facebook’s Libra is predestined to become the next (and possibly the most difficult to regulate) too-big-to-fail financial institution. Imagine a global private entity managing a volume of assets potentially larger than many systemic banks combined, providing financial services to billions of people through a single click. The implications of creating such an institution are probably beyond any supervisory controls, and no one can tell in which world such “innovation” would take us.

Privatizing monetary policy?

If Facebook and its partners succeed, we could see the emergence of an oligopolistic group that issues a private currency and unilaterally determines its own monetary policies. It would partially take away the autonomy of central bankers and effectively privatize control over monetary creation. Facebook currently denies any such intentions, but what will happen when growing trust in the value of Libra allows Facebook to claim the privilege of seigniorage? The Libra Association, which would be responsible for managing Libra, would also be able to single-handedly direct the consumption of billions of people by manipulating them to choose to buy certain products over others.

A private and opaque blockchain

Finance Watch Don’t let Facebook take over the financial system

Libra is a good example of where a “blind trust” in new technologies could lead us to if we only relied on them to solve our financial problems.

In addition to being neither a currency nor a crypto-currency, Libra also cannot claim to be decentralized. Indeed, the blockchain where payment histories would be stored would only be accessible to a number of authorized actors. You would have to pay $10 million to access it. The cyber-monetary sphere has seen more democratic management methods.

False promises and hidden agenda

Facebook says it wants to provide access to financial services for the 1.7 billion unbanked individuals from their smartphones and via the Internet. However, they would still need to have a suitable mobile phone and  data plan, which is currently not the case in most countries with the lowest banked population in the world[1].

Facebook’s real intentions seem clear: to put their hands on the wealth of financial data that they would have access to via e-portfolio statements (called Calibra), thus radically changing the way tech companies capitalize on their users’ data. Indeed, in addition to your browsing experience, Facebook could access your actual purchase history. Facebook could then increase the value of aggregate data tenfold by offering to companies the ways to identify the “best” customers and the most effective marketing techniques.

Finance Watch Don’t let Facebook take over the financial system

The Libra business model is based on an asymmetrical distribution of the company’s profits and benefits. The benefits are going to the investors and the risks will be borne by the users.

Better still, the widespread adoption of Libra would probably make it the most profitable operation in history. By converting their money, the users of this currency would de facto lend the Association Libra resources that it would not deprive itself of investing, and on which the users would not receive any interest!

Libra holders will be exposed to risks of loss

Finally, the fact that Libra is a financial asset issued by a private corporation will also expose its holders to substantial losses. Unlike bank deposits, investments in collective investment undertakings (AIF, UCITS) are very rarely covered by deposit insurance; therefore, their investors are forced to suffer losses in the event of a crisis. Facebook and its partners could unilaterally decide whether or not to support the value of the Libra. In other words, they would be able to decide to destroy the value of the deposits without any measure of external democratic oversight or customer protection.

It is time to Stop Facebook and say NO to Libra to prevent the creation of a parallel economy in the hands of a few giant corporations.

Pablo Grandjean

To go further:

– read our analysis: Ten reasons why Facebook’s Libra is a bad idea

– And above all:  Sign the petition


Finance Watch Don’t let Facebook take over the financial system

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