Libra, a cryptocurrency that Facebook seeks to launch as early as next year, could become another powerful tool of political pressure used by Western economies to adjust local markets in other countries as well as the global financial system as a whole to serve their own interests, according to Federico Tenga, a co-founder of Chainside, a company helping businesses to accept Bitcoin payments, and adviser on blockchain to the Italian Ministry of Economic Development.
Libra is going to use permissioned blockchain technology, which means that all transactions will need to be monitored by some authority, tentatively set as the Libra Association Council. This idea contradicts the very notion of cryptocurrency and blockchain technology, which was invented as a free peer-to-peer network.
The council will comprise a group of the world’s top corporations, including Mastercard, PayPal, Visa Inc., eBay, Booking Holdings, Farfetch, Spotify, Uber, Vodafone and Facebook’s Calibra, a subsidiary set up to ensure separation between social and financial data. The association is open for membership in case a candidate entity meets certain financial requirements. However, these are the founding members who will serve as Libra’s initial validator nodes, which makes Libra more a private digital currency regulated by western corporations than a cryptocurrency.
"All the members of the Libra [association council] are mostly companies from the Western countries, which makes it very politicised. So, I think it will be hard for it to be adopted in, for example, East Asia, because the governments there will be reluctant to adopt something that is controlled by Western companies", Tenga said.
According to the Chainside co-founder, Facebook seems to have "a certain political bias" since it is attempting to promote a political agenda to its own advantage.
"Libra is just another tool that they can use … Even to destabilise some countries. If Libra, let’s say, is adopted everywhere, and some country [does something against Libra], like Facebook is not allowed in China, this can be used as a tool to pressure the country to open the market and make concessions for Facebook and members of Libra", Tenga argued.
If such an attempt is successful, then Libra could become another powerful tool to increase influence "on local politics and in general on the world economy," he added.
"If Libra starts to be used in a country with which [the Western economies] have tension, like today Iran for example, then the political pressure on members of Libra federation can lead to applying sanctions. So this currency can be used as a political instrument to put pressure on local economies of other countries", Tenga said.
BACKED BY US DOLLAR
Libra is due to be backed by a basket of government bonds and major fiat currencies, including the US dollar, euro, UK pound, and Japanese yen. If indeed launched in developing countries next year, Libra will be contributing to the global dominance of the US dollar, at least in the short term, before it itself becomes a competitor to the dollar.
"Instead of using local currencies, users will be using something that is backed by the US dollar, so they will be indirectly financing the US government", Tenga said.
Moreover, the reserve basket of the most stable currencies of the world paradoxically makes Libra a coin that is stable everywhere and nowhere at the same time, Tenga noted.
"If I am in Europe, I am in an economy that is dominated by the euro, and, say, I start using this form of money, Libra. It will always have some minor fluctuations. I have one sum today, and maybe some 3 percent less tomorrow because there was some change in the US dollar to euro and so on. I used to have an equivalent of 5 euros, and now I have 4.9", Tenga said.
PERMISSIONLESS BLOCKCHAIN HARDLY POSSIBLE
According to the Libra's white paper, in five years, the cryptocurrency will try to move to a permissionless blockchain. However, the co-founder of Chainside did not believe this transition would ever take place.
"I do not think they will become permissionless for real, I think they are just saying it, but actually have no idea. If they are successful and they have control of this thing, why should they then give up this control?" Tenga said, adding that this process might be difficult from a technical point of view.
A natural concern that arises from here is users’ privacy and data collection. Facebook already has a questionable record on observing users’ privacy, and simply establishing a separate subsidiary to deal with financial issues — Facebook's subsidiary Calibra, which is one of the members of the council — is unlikely to erase it.
"If you say something on Facebook, maybe you do not really mean it. But if you buy something, this is actually your money, so it is a much more relevant data on your profile. It can be a way for Facebook and other companies to get more data on users, including other users, also outside of the platform. That can be the issue. People are becoming more and more aware of the privacy problem", Tenga said.
This is precisely one of the main reasons why the project is facing fierce opposition in the US Congress. During hearings on Tuesday and Wednesday, members of the House Financial Services Committee said they could not trust Facebook, citing the social networking giant's record of privacy breaches and scandals.
They questioned David Marcus, the former president of PayPal, who now oversees the Libra project on Facebook, over data privacy, consumer protections and money laundering controls. It was proposed that Libra first be tested with a pilot program with one million users, under the supervision of US financial regulators. Marcus did not directly agree but said Libra would not be launched until regulatory concerns were addressed. In any case, the draft legislation to ban Facebook and other tech firms from entering the financial services sector has already been circulated.
BETTER FORM OF MONEY
Even with all its drawbacks, Libra has a chance to become a positive experiment in the monetary system in the current digital age, Tenga opined.
"I think in general the idea of private money competing with each other is good because it overcomes the idea of money as the monopoly of the government. So, more competition from private currency can eventually lead us to a better form of money", he said.
According to the co-founder of Chainside, "apart from the fact that it is completely controlled by a few private corporations" it is still "an improvement" compared to the fiat paper money status quo.
Nevertheless, as long as this competition represents a fight for financial and political power between tech giants and governments within a single country, humanity is unlikely to see either a better form of money or billions of empowered people who are currently left outside of the traditional banking system.
Views and opinions, expressed in the article are those of Federico Tenga and do not necessarily reflect those of Sputnik.