Facebook claims that its new project – Libra – is "a simple global currency and financial infrastructure that empowers billions of people." Its professed aim is to provide a digital currency for everybody using the Internet to buy and sell goods and services to each other across the world, seamlessly and with near-zero transaction costs. This would by-pass international banks and national currencies along with associated costs and fees, and all transactions would be hidden from the authorities and banks. Supposedly, over one and a half billion people without bank accounts would be able to carry out transactions globally on their phones and laptops.

Libra may make international transactions a little faster, but it still won't be as fast as traditional payment methods. Facebook is also not a pioneer here – WeChat and Alipay are already ubiquitous in China. The issue here is the sheer size of Libra's global ambition, with billions of Facebook users and the backing of many large multinationals.

Libra is the Latin word for pound in weight of silver or gold and was a universal measure of value in Roman times. But Facebook's Libra will be no such thing. It will be a private currency existing for the commercial gain of Facebook and its backers. It will be owned and controlled by a board of multi-national corporate investors who will pledge a minimum of $10 million to get it going.

The U.S. dollar is owned by the U.S. government, as are other national currencies. There are regulations and laws on how national currencies are issued, but this won't apply to Libra. Holders of Libra will have to trust Facebook and its investing board to ensure nothing will go wrong.

Libra will use blockchain technology, the decentralized digital settlement system that is behind cryptocurrencies like Bitcoin. Cryptocurrencies aim to eliminate the need for financial intermediaries by offering direct peer-to-peer (P2P) online payments. Blockchain is a "ledger" containing all transactions for every single unit of currency. It differs from existing (physical or digital) ledgers in that it is decentralized. Instead, it employs verification based on cryptographic proof, where members of the network verify "blocks" of transactions approximately every 10 minutes.

The purpose of money in a capitalist economy is first as a universal means of payment, then as a store of value, and finally, as a unit of account in balance sheets. Cryptocurrencies do not meet these three criteria. Their function as a unit of account and store of value are greatly impaired by their speculative nature. Bitcoin is very volatile because it is really only bought and sold for speculation and not widely used for transactions or savings.

Libra does not have Bitcoin's ambition of becoming a universal decentralized digital currency. Instead, it will be a private currency that aims to make money by exploiting Facebook's 2.4 billion users. 

Libra is, in reality, an exchange traded fund (ETF), whose value is based on a "basket" of five national currencies (dollars, euros, yen, sterling and Swiss franc) according to a weighted ratio. Libra is not a true international digital currency in its own right but dependent on the value of these major national currencies. It's a private currency for Facebook users and similar to the Special Drawing Rights (SDR) used by the IMF for the settlement of contributions and payments by national governments.

But here is the issue. If you buy Libra and hold it in your Libra "wallet," unlike deposits in a bank, you won't earn interest. In effect, all interest goes to the owners of this private currency – it is a form of seignorage, previously only available to national governments and central banks.  

Indeed, the huge amounts of Libra that build up in Facebook users' "wallets" will be available for the board to speculate in financial assets globally, thus adding to the possibility of credit bubbles and financial crashes. The regulation of banks and other financial institutions has not worked, as the global financial crash proved. And the huge rise of private sector debt continues alongside the rise in public sector debt that mushroomed as a result of bailing out the global banking system. Libra will create a new layer of credit-fueled debt, with repercussions for billions of people, and without any deposit insurance from governments.

If a large section of a country's population were to use Libra instead of the sovereign currency, central banks could be left powerless, or unable to stop the rapid conversion of currency into Libra during periods of financial distress.  

With the use of cash on the decline, we are already reliant on a handful of big banks to manage our money and make payments. Libra is a corporate attempt to assert even greater control over our money.

Libra shows that the bureaucratic, inefficient and autocratic control of our money by capitalist states and institutions is under threat from global tech companies. Indeed, it is ironic that supporters of Modern Monetary Theory are telling us that the state controls and creates money, and in return gives employment and income for all. However, with Libra, that same capitalist state is being challenged by private monopolies for the control over money.

Heiko Khoo is a columnist with China.org.cn. For more information please visit:

http://china.org.cn/opinion/heikokhoo.htm

Michael Roberts is a London based Marxist economist. He published the "The Great Recession" in 2008 and "Essays on Inequality" in 2014.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

If you would like to contribute, please contact us at opinion@china.org.cn.

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