With the Facebook Libra / Globalcoin set to launch as soon as Tuesday 18 June and news that the social media giant has just hired a Standard Chartered bank lobbying supremo, interest is reaching fever pitch.
Some have questioned why Facebook is launching a crypto product at all, while others says it will probably not be a “real” crypto.
But both of those viewpoints miss the real import of what Mark Zuckerberg is up to.
From Cincinnati Time Store to Bitcoin to Facebook Libra Coin
Before the invention of bitcoin – and its necessary precursor the internet – the possibility of sustaining a private money form was limited, and not just by states that jealously guard their monopoly over the money supply.
A brief glance at the various utopian schemes proffered in the US in the early nineteenth century, before industrial capitalism had a sure footing, provides legion examples of the difficulties.
Chief among them was the Cincinnati Time Store venture EWN covered a few months back, that lasted three years and was a success in the localities in which it operated.
Let’s not delve further into the radical anarcho Ricardian roots of the ideas of Josiah Warren (the time in question was labour time), but instead home in on its inability to roll out its local success at national scale.
Its national scale was a part of the secret of the success of the US as the economic powerhouse it is today – the lack of regulatory frictions, notwithstanding state laws, provided an accessible home market. But things were not so straightforward for money.
Many banks competed with issuing their own paper bills (of exchange) but none held national sway.
Warren’s scheme could not escape the same parochialism borne of technological limitation. In Warren’s day there was no way to effect a one-to-many relationship in the fashion of the 21st century internet.
There were many competing forms of money in the US at the time, which was partly because of the vast distances that made interconnectedness before the telegraph and the railway impossible at any faster rate than the horse.
Facebook Libra coin’s universality
In addition to well-attested properties that money must have to fulfil its necessary function as a standard of measure, means of exchange and store of value, there is one that tends to be overlooked or at any rate subsumed in the others.
Alongside acceptance (trust), portability and divisibility, is an underlying assumption that the functionality money delivers will be applicable to the entire universe of all exchange values.
The Cincinnati Time Stores needed a national network that was available to all – or a large majority – of consumers and producers for it to establish a hegemonic presence. That was technically not possible; no matter how much loved the stores may have been in Cincinnati, their impact was limited.
There was no point in a merchant or service provider marking up prices in labour-time expended in the production of a good or fulfilment of a service if there was no market in which such a standard was used. Similarly, there was no incentive to accept the stores’ notes.
A Facebook global coin makes 21st century private money easy
Enter Facebook’s Libra coin, although the name that was previously doing the rounds – Globalcoin – illustrates our universality imperative much better.
Facebook, as the world’s most pervasive social network, is, privacy doubts aside, the most perfectly suited issuer of private money in the 21st century.
Unlike the Cincinnati Time Store Facebook has the ability to launch its money simultaneously everywhere if it so wishes. Even if it chooses a staggered rollout, this potential of universality would still work its magic, forcing others to respond to its gravitational force.
That’s why it has been so easy for Facebook to do deals (to be precise, bring in as members of the “independent” foundation governing the Libra coin) with supposed payment rivals such as PayPal, Visa and Mastercard. It’s why it has been able to bring service providers such as Uber on board to accept its private money.
It’s why, after its discussions with the US Treasury and the governor of the Bank of England, it is presumably fairly confident that it will be able to comply with regulations, such as they are.
FATF finalises recommendation on global crypto on 21 June – is Facebook Globalcoin launch timed wrong?
However, we should add a caveat, or at least further explanation, on the regulation issue.
The Facebook Libracoin/Globalcoin whitepaper is set for release three days before the Financial Action Task Force (FATF) finalises its recommendations for what it calls virtual asset service providers (VASPs) on 21 June.
Facebook is well aware of the impending global crypto regulations rollout and knows that each jurisdiction will interpret the rules differently. But its strategy is unlikely to be to play one country’s regulators off against another, in a sort of whack-a-mole play.
Alternatively, Facebook may seek to argue for laxer regulations for the unbanked and those not seeking to interact directly with the fiat financial system – users may be granted a certain amount of currency or could earn it through various activities such as watching video adverts.
The FATF recommendations as they relate to crypto have been finalised with one exception and this is it: the all-important paragraph 7b, with the salient part highlighted below:
7 (b) R.16 – Countries should ensure that originating VASPs obtain and hold required and accurate originator information and required beneficiary information on virtual asset transfers, submit the above information to beneficiary VASPs and counterparts (if any), and make it available on request to appropriate authorities. It is not necessary for this information to be attached directly to virtual asset transfers. Countries should ensure that beneficiary VASPs obtain and hold required originator information and required and accurate beneficiary information on virtual asset transfers, and make it available on request to appropriate authorities. Other requirements of R.16 (including monitoring of the availability of information, and taking freezing action and prohibiting transactions with designated persons and entities) apply on the same basis as set out in R.16
It is likely that Facebook is pre-empting this by building in the necessary “bank wire level” reporting compliance.
To do that it will have to introduce KYC/AML onboarding for existing Facebook/WhatsApp/Instagram/Messenger customers to gain access to the Libra Coin.
But to get traction with such an approach means we come back to the problem of trust, but given that people provide their details to merchants of all types on the internet and Facebook’s reported partnerships with existing players, at least partly with an eye to ameliorating such concerns, this is not necessarily the insurmountable barrier it might appear at first sight to the social network’s payment and marketplace ambitions.
Facebook’s Project Libra know what regs are coming, or are pre-empting
Alternatively, Facebook, if it hasn’t factored in the unknown regarding which direction the FATF will move in on paragraph 7b next Friday, then it would be wise to wait until that is clear.
That’s unlikely to happen at this late stage which does suggest Facebook knows what’s coming down the line.
And the news today, reported by the Financial Times, that Facebook has hired Standard Chartered’s head of corporate and public affairs, Ed Bowles, to be its director of public policy, suggests it is preparing in advance for the regulatory tussles to come.
Facebook, some existing regulated firms and cryptocurrency industry main beneficiaries
Actually, Facebook would probably be a beneficiary of new expensive regulatory hurdles to entry, as would existing regulated VASPs and non-crypto financial services companies.
But these are really side issues. Facebook’s global reach means its coin will have the universality and the convenience that comes with it. That will likely trump trust fears for many consumers, if not for government regulators concerned about privacy and monopoly practices.
The banks and regulators are behind the curve and Facebook and those crypto firms that can navigate the new regulations will be the winners.
Bitcoin – the one coin to rule them all
So too will bitcoin (if not XRP) and other decentralised (mined) digital currencies that can operate independently of states, even if on and off ramps become policed more vigorously – market activity will simply be transferred to over-the-counter trading.