US lawmakers ask Facebook to cease Libra cryptocurrency development

Sovereign digital currencies could be one likely outcome of super-sovereign creations like Libra.

"We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra—its proposed digital wallet. It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook's over 2 billion users, but also for investors, consumers, and the broader global economy."

So begins a letter from US house lawmakers to Facebook executives.

"Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action. During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail."

So ends the letter.

For its part, Facebook doesn't sound like it's going to be pulling the plug. First, because as a single member of the Libra consortium, it's largely out of Facebook's hands now. And second, because it probably doesn't want to.

In a statement, Facebook said it would be working with lawmakers, but strongly implied that it would continue development.

"We look forward to working with lawmakers as this process moves forward, including answering their questions at the upcoming House Financial Services Committee hearing," it said.

Please stop in the name of the law

Facebook is the world's largest country, with a population of almost 2.5 billion. Its economy is largely focused on tech and service industries. Its chief imports and exports are both data.

In that context, US lawmakers are probably right to be worried about the impact of Libra on their monetary supremacy. They're worried Facebook might be trying to do the same thing Russia (a small country with a population of only 145 million) wants to do with cryptocurrency, but much more successfully.

It's a concern that goes beyond the United States, and countries all around the world have reason to be worried about what the success of Libra might mean for their economic policies.

Libra has also sparked debates in China, despite Facebook being blocked by the great firewall and cryptocurrency trading being banned.

The South China Morning Post observes that a super-sovereign currency could frustrate China's plans to push for further yuan dominance, but the general tone is that the runaway success of Libra as a new super-sovereign currency is still more of a fringe possibility than something to legitimately plan for.

"It is less than 50 years from the start of the Bretton Woods system to the present. The digital currency has just emerged. The monetary system has changed through bloody and cruel wars. Humanity and the economy will not change because of a white paper," shrugs Chinese economic commentator Ye Tan.

And for their part, China's tech giants have repeatedly said they have no intention of creating their own digital currencies. It's yuan all the way there.

A glimpse of the future

To an extent, Facebook and the Libra organisation are setting out to do what China's tech giants have been doing for a long time now, so anyone trying to guess how Libra will shake out could do a lot worse than looking at what's happening in China.

On the payments front, China's mobile payments revolution is now sufficiently well underway that it's possible to actually look back on it, rather than just make predictions for it. And one of the things we can learn from looking back on it is that China's large tech companies – mainly Alibaba with AliPay and Tencent with WePay – were the primary drivers of that mobile payments revolution. By providing easy and useful mobile payments to a captive audience, they helped sweep the country into the future.

Elsewhere, China is exploring the use of social media, specifically WeChat, as a valid formal government identification system.

The tech companies there aren't issuing their own digital currencies, but they don't need to. China recently ramped up its own digital yuan development efforts, and China's tech companies will be able to get the efficiency benefits of digital currency anyway.

In contrast to the examples from China, it's not entirely incorrect to say Libra is an over-engineered solution in some ways.

Tfw you realise that the Americans who designed Facebook's cryptocurrency live in a world where contactless payments basically aren't a thing pic.twitter.com/pmTtyRGYYn

— Charles Arthur (@charlesarthur) June 18, 2019

But by the same token, even if Libra is largely reiterating what China's (and Europe's, Africa's, etc) tech companies did years ago, that probably bodes well for its success.

Precedent says that a tech company with a captive audience can quickly and successfully push its users onto mobile payments, and that if it's useful, Libra could be quite successful.

The unique features it brings, which you don't yet get elsewhere, are the ability to make those same cheap, instant payments internationally rather than just domestically and more stable value than many local currencies. But in contrast to this, examples suggest that national digital currencies will prove to be more acceptable than cryptocurrencies like Libra in the end. It's safe to say these will similarly bring seamless international payments somewhere down the line.

All in all, existing examples suggest that Libra could very quickly enjoy a great deal of success on the back of a good user experience, and that countries will end up turning to their own digital currencies to retain monetary sovereignty going forwards.

Or maybe the great nation of Facebook will just go ahead and achieve monetary independence, adding another brand of currency to the global marketplace in the process.

Also watch

Disclosure: The author holds BNB and BTC at the time of writing.

Picture: Shutterstock