One of Facebook’s co-founders has warned the social network’s plans for a digital currency called Libra could allow corporations involved in the scheme to wield power over nation states.
Chris Hughes, whose role in the early days of Facebook has given him a net worth estimated at $430m (£340m), said global regulators should intervene to slow the progress of the cryptocurrency.
Facebook is developing Libra from a base in Switzerland, in partnership with 27 other corporations – including Mastercard, Paypal, Uber and Vodafone – collectively known as the Libra Association.
What is Libra?
Facebook says Libra is a 'global currency and financial infrastructure' - a digital asset built by Facebook and powered by a new Facebook-created version of blockchain, the encrypted technology used by bitcoin and other cryptocurrencies. The name Libra comes from the basic Roman measurement of weight. The abbreviation lb for pound is derived from Libra, and the £ symbol originally comes from an ornate L in Libra.
Why is Facebook launching a cryptocurrency?
Facebook claims it wants to reach the 1.7 billion people around the world who do not have access to a bank account.
Who is in charge of Libra?
Facebook is likely to run into regulatory hurdles and antitrust concerns. The currency will be serviced by a collective of companies called the 'Libra Association'. It functions as what is known as a 'stablecoin', pegged to existing assets like the dollar or euro, in the aim of making it less subject to the volatility that many cryptocurrencies experience.
The Libra Association is described by Facebook as an independent, not-for-profit organisation based in Switzerland. Within the Libra Association will be a governing body called the Libra Association Council, comprised of a representative of each member of the association, which will vote on policy and operating decisions.
Facebook claims that although it created the Libra Association and the Libra Blockchain, once the currency is launched in 2020 the company will withdraw from a leadership role and all members of the association will have equal votes in governance of Libra. The companies who contributed a minimum of $10m(£8m) to be listed as founding members of the Libra Association include tech companies such as PayPal, Ebay, Spotify, Uber and Lyft, as well as financial and venture capital firms such as Andreessen Horowitz, Thrive Capital, Visa and Mastercard.
However in October 2019 several of the companies that had been backing the initiative announced that they were pulling out, including Visa, Mastercard, PayPal and Stripe.
How and when can I use it?
With regulators asking questions and backing companies dropping out, it is unclear now if Libra is still viable. Facebook's original plans were that users could download Calibra, a digital wallet, that would allow them to send the currency to anyone with a smartphone. It is no longer clear which countries the coin will launch in first, if at all, though Facebook had said 'almost anybody' in the world with a smartphone would be able to download the app.
Kari Paul in San Francisco
“If even modestly successful, Libra would hand over much of the control of monetary policy from central banks to these private companies,” said Hughes, a co-chair of the Economic Security Project, an anti-poverty campaign group. “If global regulators don’t act now, it could very soon be too late.”
Mark Carney, the governor of the Bank of England, gave a cautious welcome to Libra in his speech at the annual Mansion House dinner on Thursday night.
But in an article for the Financial Times, Hughes said the companies involved in the Libra Association, which have each put $10m into the project, would be able to “disrupt and weaken” nation states.
He warned that if enough people in emerging economies traded local currency for Libra, it would threaten the ability of governments to manage their fiscal policies. Emerging markets should place a temporary ban on local banks and payment processors accepting the currency until the implications are thought through, Hughes said.
“What Libra backers are calling ‘decentralisation’ is in truth a shift of power from developing world central banks toward multinational corporations and the US Federal Reserve and the European Central Bank,” he said.
Hughes added that if Libra is successful, Facebook and its partners would hold undue sway over the development of crucial global technology such as identify verification, as well as effectively writing the rules on matters such as privacy and response to theft.
He said anyone believing his fears were overblown should consider how Facebook has had a huge, sometimes negative, effect on other walks of life.
“The company’s decision to offer live broadcasting made it possible for teenagers to stream bullying, terrorists to live cast an execution and a gunman a mass shooting,” Hughes said.
“It has similarly transformed mobile messaging and news and journalism faster than many imagined.”
The Guardian has approached Facebook for comment.
