With the banks we're used to there's a potential tragedy of the commons in that their separate decisions all affect the shared money supply, which is indistinguishable, so one reason to have a central bank is to get some overall control of those distributed decisions. A distinct competing currency already under a single decision maker doesn't so obviously need that extra governance. I don't know, maybe it does, but I'd like to see the reason spelled out.
(Hayek raised this point in his Denationalisation of Money.)
That would be a problem from the governments perspective. Any theory that starts by assuming normal economic forces forces where money is concerned is risky.
The supply of money is actively managed by governments in response to various things. That ability to exchange serious amounts of money is not usually tampered with but is generally required to flow through systems which a national government controls (usually the US Government) and there are gate-keeping fees to get involved. The ability to make loans or do creative accounting at scale is also locked down with regulations and requirements.
It is an interesting situation because the distortions don't directly generally stop anyone doing anything directly; but the way winners are chosen doesn't function exactly like a theoretical free market. Facebook is unlikely to be selected as a winner if they just jump in feet first; and particularly if they want to expose the monetary system to supply-demand forces that aren't under government control.
(I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)
National central banks in the modern era have two functions: manage the money supply and make sure that the economy is running well. It's true that Libra would be the only direct impact, but then you have people who have debts in dollars and revenues in Libra, and if they can't pay back their dollar debts then their lenders are now short of dollars and can't pay back their obligations, and now we have a financial crisis.
Examples of this include 1997 in Asia: https://en.wikipedia.org/wiki/1997_Asian_financial_crisis
Very much not true.
Quantitative easing, the process of minting money to inject liquidity into the economy, was a core tenet of the Obama administration’s* response to the Great Recession. Literally trillions of dollars created to purchase bonds and mortgage backed securities to prop up the economy.
Edit: It was during the Obama administration but implemented by the Fed, which is independent of the White House administration (thank god.)
Banks and credit issuing institutions are heavily regulated and have a variety of criteria that must be met to legally operate in that capacity.
This is unlike a fractional-reserve bank, which can turn those most of those $10 into loans of any sort and still pretend it's cash that's available at any time.
Why is a Libra loan to the government different to a fractional reserve loan of any sort?
If all the Libra association members are willing to be bound by the same laws, then cool: but do you trust Vodafone, or Facebook, or Andreessen Horowitz, to not try to bend the rules so they can make more money?
History has shown us that unregulated banks, and regulated banks that push the limits or evade regulations fail and cause damage to the entire economic system.
Having said that, if you want to issue worthless tokens backed by nothing in exchange for real money, you can do that. That's your average initial coin offering. Laws still apply and you need to do due diligence, but it's possible.
This sounds dangerous and wrong, but the same thing happens if you buy a gift card or deposit cash into a checking account.
Now you have an Amazon gift card or bank debit card for $100 _and_ Amazon or your bank has $100 that they'll put back into circulation.
It's just how money works, it's nothing new with Libra.
Clearly they got something right.
Facebook just becomes an unregulated central bank.
FB has been the subject of several congressional and parliamentary hearings around the globe recently. Why would they not question Libra?
I think it's interesting that while crypto was a bunch of hobbyists and startups, it was just a bunch of folks wasting their money, but now that FB is involved it's a threat to the global monetary order. (Personally, I think the threat of FB is overblown - I'd bet that it'll make some significant noise over the next 2-3 years but fail over the next 10 - but the threat of startups and new crypto projects is underestimated. While the government is obsessed with FB's 2 billion users, someone else will come up with a cryptocurrency that's actually useful and take those 2 billion users for themselves.)
Might be the same with crypto money where they'll be under the same laws as real money and trading.
Second of all, it IS accountable to far more than just "rich people". There's many times of democracies... and one way of breaking it down is democracy by vote vs. democracy by exit. The US Government is a democracy by vote. Starbucks is a democracy by exit. You have no control over how Starbucks makes their coffee, but if you don't like it...then you can just go across the street to another coffee shop. That way, Starbucks is extremely accountable to their customers...because if they stop meeting customer demand then they'll go out of business. I'd personally argue Starbucks operates much more efficiently than the US Government (but that's a separate issue). Libra works the same way. Right now, you're forced to use the US Dollar to pay. With Libra, you're under no such compulsion. If you don't like the way Libra is being operated...use some other currency to do your transactions. This will cause less money to be in Libra reserves... resulting in less money to Libra shareholders... and on and on. Therefore, Libra IS democratically accountable.
Likewise, when corporations become too powerful and monopolistic, they are technically "democracies by exit." But, much like some countries, they are not democratic in the important sense.
When such companies exercise too much power, most ordinary people do not have any control over the forces that most significantly impact their lives. And it is this sort of distributed control which makes a system democratic or undemocratic.
Cryptocurrency and blockchain technology have opened up permissionless innovation in an industry that has been so choked by regulation that previously only the largest, most well-connected players could get in the door: finance. You can, right this second, create a smart contract that allows extremely sophisticated financial instruments and attract real users. The initial shoots of innovation are already happening, such as MakerDao's Collatorized Debt Positions (CDPs)[0] and Compound Finance for money market crypto instruments.[1]
Regulators and governments can stick their fingers in their ears, outlaw the technology, and drive everything offshore or underground. The point is that these technologies are permissionless and unstoppable. As long as the internet exists, you can't eliminate such technology and behavior.
Rather than knee-jerk outlaw progress in the industry by projects such as Libra, governments need to let the industry mature and eventually pass laws that protect consumers without stifling innovation. HN users especially need to embrace their so-called "hacker" roots and stop lobbying for the state to crush such innovative technology in its infancy.
Seriously - the outrage to blockchain and crypto on HN is entirely absurd. This is cool, interesting technology and entrepreneurs should be analyzing it for its disruptive potential rather than whining that there aren't enough licenses and bureaucrats involved.
Laws link the real world (a thing or action) to an intangible concept (a transaction or a contract).
Without a guarantee of that link (ultimately, via force), you're left with joke monopoly money.
And if you leverage the existing system to accomplish that link (e.g. via writing legally valid smart contracts), then you're again beholden to governments.
People don't use government-backed currency because they have to: they use it because it's useful and reliable.
This is the myth that will apparently never die in the crypto community. Yes, the people with badges and guns and court orders absolutely can prevent crypto from being widely adopted if they want to:
In the case of Libra, regulators like the Federal Reserve can simply say 'no'. Unless the Libra Association hires a private army that can defeat the world's current best in a standing battle, there's not much they can do about it.
In the case of crypto in general, while I agree they probably can't prevent the .1% of the population who are tech savvy enough to manage their own wallets:
1. That's nowhere near enough people to get mass adoption
2. Much more importantly, the Feds can prevent businesses from accepting crypto for payment. If crypto can't be used for payments for legit goods (i.e. not drugs/hitmen), it's useless except as a means of pure financial 'bigger fool' speculation (wait, that's what it is now!) No one who operates a legitimate business is going to risk catching a felony if the US says 'bitcoin is illegal, 3-5 year sentence if you use it', etc. No payments for legit goods = no broader network effect. Instead you simply own the 21st century equivalent of a penny stock.
I'm not militantly anti-crypto, but the community is really naive about how much power regulators & law enforcement really has if they want to exercise it. If crypto becomes a 'thing', it will be another highly regulated finance product offered by Huge Company, like Libra. The libertarian (frankly populist) dream is not in contact with reality
The truth is that crypto is very scammy and that its value run-up in 2018 was a massive bubble, but that doesn’t mean the tech behind that bubble is worthless. Anyone who got rich off of crypto essentially got lucky, but that says nothing about how good that technology is or is not. Crypto can be good technology and a bad investment while still allowing risk takers to make millions.
Lets not confound the capacity to build a token with the capacity to levy taxes. The latter is the scary one. The former is just playing with casino chips and airline miles.
Once FB creates services that people want and then FB decides that they will only accept its currency as payment then people will have the confidence to accept it and use it. There is no doubt in my mind that FB will create services since all companies eventually create them as part of their business.
There is nothing new about the general idea. It's happened in the past and it will happen in the future.
There are things happening in Africa right now that make me think FB won't be a major player in Africa in the future. The Africans have been smitten by the Chinese protectionist model. That new free trade agreement they have actually specifically excludes your company from benefiting if you're using goods or services from outside the zone where options exist inside the zone. Don't misunderstand me, I get it, they need to get their economies going. Get jobs for their people. Etc. Just pointing out that this stipulation has some obvious consequences for companies outside the zone.
And it's not just Africa, I'm betting the future will see a balkanization of the internet. I could be wrong though? But I doubt it. A lot of corruption in Africa and everywhere else, and corrupt people are exceedingly greedy. I think we can count on them taking the whole pie wherever possible. As well as aggressively working to expand the number of places it's possible to take the whole pie.
This is naive. Breaking governments’ holds on currency would be supremely lucrative for bankers. See the American free banking era.
Over the centuries we have built up a very elaborate currency system. It complex with elaborate protections yet is simple for your average person to use.
It's also very expensive for what it does. Today money is represented by a few bytes on a disk. Transferring it takes a few smallish IP packets and minimal CPU cycles. Ergo, the cost of doing these things should be fractions of a cent. Yet if I buy something using paywave, it costs someone about 1% of the transaction. If I by something over the internet it's more than 1%. If I transfer $1K overseas it costs $20 or something. With costs like that its ripe for disruption.
This system is firmly cemented into our society with lots of law, and this inflow of those huge quantities of cash has created a legion of formidable vested interests who will defend it to the death (most because if it disappears they will too).
This is what Uber was up against in the taxi industry, albeit this is at much larger scale. Uber got around it by just ignoring the law, and in the process bankrupting the species those laws protected - the taxi licence holders. It caused enormous pain for them, and they were most innocent bystanders.
It's going to take a special kind of hubris to take that on, and a enormously talented person to pull it off. Zuckerberg may be that person. I can't say I like his chances, but given he's seen WeChat's success in China I don't doubt his motivation.
