Wikipedia, 22 June 2019:
A cryptocurrency (or crypto
currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial
transactions, control the creation of additional units, and verify the transfer
of assets. Cryptocurrencies
use decentralized control as opposed to centralized
digital currency and central banking systems……
As the popularity of and
demand for online currencies has increased since the inception of bitcoin in
2009, so have concerns that such an unregulated person to person global
economy that cryptocurrencies offer may become a threat to society.
Concerns
abound that altcoins may become tools for anonymous web criminals.
Cryptocurrency networks
display a lack of regulation that has been criticized as enabling criminals who
seek to evade taxes and launder
money.
The Guardian, 22 June 2019:
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.
Financial Review, 21 June 2019:
Facebook has just
unveiled its latest bid for world domination: Libra,
a cryptocurrency designed to function as private money anywhere on the planet. In
preparing the venture, Facebook CEO Mark Zuckerberg has been in negotiations
with central banks, regulators, and 27 partner companies, each of which will
contribute at least $US10 million. For fear of raising safety concerns,
Facebook has avoided working directly with any commercial banks.
Zuckerberg seems to
understand that technological innovation alone will not ensure Libra’s success.
He also needs a commitment from governments to enforce the web of contractual
relations underpinning the currency, and to endorse the use of their own
currencies as collateral. Should Libra ever face a run, central banks would be
obliged to provide liquidity.
The question is whether
governments understand the risks to financial stability that such a system
would entail. The idea of a private, frictionless payment system with 2.6
billion active users may sound attractive. But as every banker and monetary
policymaker knows, payment systems require a level of liquidity backstopping
that no private entity can provide.
Unlike states, private
parties must operate within their means, and cannot unilaterally impose
financial obligations on others as needed. That means they cannot rescue
themselves; they must be bailed out by states, or be permitted to fail.
Moreover, even when it comes to states, currency pegs offer only an illusion of
safety. Plenty of countries have had to break such pegs, always while insisting
that “this time is different”.
What sets Facebook apart
from other issuers of “private money” is its size, global reach, and
willingness to “move fast and break things.” It is easy to imagine a scenario
in which rescuing Libra could require more liquidity than any one state could
provide. Recall Ireland after the 2008 financial crisis. When the government
announced that it would assume the private banking sector’s liabilities, the
country plunged into a sovereign debt crisis. Next to
a behemoth like Facebook,
many nation-states could end up looking a lot like Ireland.
Facebook is barreling
ahead as if Libra was just another private enterprise. But like many other
financial intermediaries before it, the company is promising something that it
cannot possibly deliver on its own: the protection of the currency’s value.
Libra, we are told, will be pegged to a basket of currencies (fiat money issued
by governments), and convertible on demand and at any cost. But this guarantee
rests on an illusion, because neither Facebook nor any other private party
involved will have access to unlimited stores of the pegged currencies…..
