Tech columnist Peter Griffin explains why a digital currency planned by social media’s persona non grata looks like a non-starter.
Facebook executive David Marcus’ appearance before the US Senate banking committee in recent weeks was disastrous. Democrat and Republican politicians alike made it clear they’d do everything they could to stop the social-media giant from launching an alternative to conventional banking.
“We’d be crazy to give it a chance to experiment with people’s bank accounts,” said Sherrod Brown, a Democrat from Ohio, who likened Facebook to a “dangerous toddler who has gotten his hand on a book of matches” and, after burning down the house several times, “called every arson a learning experience”.
“Instead of cleaning up your house, now you’re launching into another business model,” said Martha McSally, a Republican senator from Arizona.
This was different from Facebook founder Mark Zuckerberg’s appearance on Capitol Hill in April 2018 in which he tried to atone for the Cambridge Analytica data scandal. That had seen the company expose data on up to 87 million Facebook users to a political research firm that was trying to help Donald Trump win the 2016 presidential race.
The sheer arrogance and lack of self-awareness in Facebook’s leadership forging ahead with an ambitious plan to revolutionise e-commerce are staggering. Just two weeks ago, Facebook was fined US$5 billion by the US Federal Trade Commission for a slew of privacy violations, including Cambridge Analytica.
It was a record-breaking fine, but it amounted to a slap on the wrist for Facebook, which made US$22 billion in profit last year. The company’s share price rose on the news, increasing Zuckerberg’s vast fortune in the process.
So it was hard not to delight in the grilling of Marcus, who heads Calibra, the division that is responsible for Facebook’s digital-currency efforts. New Zealand has its own reason to distrust Facebook after it allowed the spread through its network of video of the Christchurch mosque shootings in March, then made token efforts to address its failings.
For all that, Libra has merit. Facebook envisages it not as a rival to digital currency bitcoin, which has experienced wild fluctuations in value and is hard for most people to understand and use. Instead, it would allow anyone with a digital wallet on their mobile phone to exchange Libra coins and pay for things easily online.
It would not be controlled by Facebook directly, but by the Libra Association, which includes big companies such as eBay, Uber, Vodafone, Visa and Mastercard as well as Facebook.
The currency would be underwritten by the association members’ assets, giving merchants confidence that its value would be stable.
Would Libra take off? No one loves the banking sector’s fees, and there are 1.7 billion “unbanked” people worldwide who could benefit from such a system. But Facebook is the wrong company to design it and now is the wrong time to launch it.
Although Facebook claims it would not access any transaction data of Libra users or harvest information to target adverts at them, the company’s cryptocurrency effort is by no means altruistic. It fears Google or another company doing something similar and drawing Facebook users to another platform.
It would be different if the idea came from a neutral outfit such as the trusted not-for-profit Mozilla Foundation, which created the Firefox web browser.
But at the best of times, a decentralised currency that takes power away from the government-regulated banking system would be a tough sell.
A Libra-like digital currency would be beneficial, but not one with the taint of a hungry corporate such as Facebook.
This article was first published in the August 3, 2019 issue of the New Zealand Listener.