{"id":136973,"date":"2019-07-08T12:00:46","date_gmt":"2019-07-08T11:00:46","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=136973"},"modified":"2019-07-15T11:42:10","modified_gmt":"2019-07-15T10:42:10","slug":"thumbs-down-to-facebooks-cryptocurrency","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2019\/07\/thumbs-down-to-facebooks-cryptocurrency\/","title":{"rendered":"Thumbs Down to Facebook\u2019s Cryptocurrency"},"content":{"rendered":"

Only a fool would trust Facebook with his or her financial wellbeing. But maybe that\u2019s the point: with so much personal data on some 2.4 billion monthly active users, who knows better than Facebook just how many suckers are born every minute?<\/em><\/p><\/blockquote>\n

\"\"<\/a>

Project Syndicate<\/p><\/div>\n

2 Jul 2019 – <\/em>Facebook and some of its corporate allies have decided that what the world really needs is another cryptocurrency, and that launching one is the best way to use the vast talents at their disposal. The fact that Facebook thinks so reveals much about what is wrong with twenty-first-century American capitalism.<\/p>\n

In some ways, it\u2019s a curious time to be launching an alternative currency. In the past, the main complaint about traditional currencies was their instability, with rapid and uncertain inflation making them a poor store of value. But the dollar, the euro, the yen, and the renminbi have all been remarkably stable. If anything, the worry today is about deflation, not inflation.<\/p>\n

The world has also made progress on financial transparency, making it more difficult for the banking system to be used to launder money and for other nefarious activities. And technology has enabled us to complete transactions efficiently, moving money from customers\u2019 accounts into those of retailers in nanoseconds, with remarkably good fraud protection. The last thing we need is a new vehicle for nurturing illicit activities and laundering the proceeds, which another cryptocurrency will almost certainly turn out to be.<\/p>\n

The real problem with our existing currencies and financial arrangements, which serve as a means of payment as well as a store of value, is the lack of competition among and regulation of the companies that control transactions. As a result, consumers \u2013 especially in the United States \u2013 pay a multiple of what payments should cost, lining the pockets of Visa, Mastercard, American Express, and banks with tens of billions of dollars of \u201crents\u201d \u2013 excessive profits \u2013 every year. The Durbin Amendment to the 2010 Dodd-Frank financial-reform legislation curbs the excessive fees charged for debit cards only to a very limited extent, and it did nothing about the much bigger problem of excessive fees associated with credit cards.<\/p>\n

Other countries, like Australia, have done a much better job, including by forbidding credit card companies from using contractual provisions to restrain competition, whereas the US Supreme Court, in another of its 5-4 decisions<\/a>, seemed to turn a blind eye to such provisions\u2019 anti-competitive effects. But even if the US decides to have a non-competitive second-rate financial system, Europe and the rest of the world should say no: it is not anti-American to be pro-competition, as Trump seems to have recently suggested<\/a> in his criticism of European Commissioner for Competition Margrethe Vestager.<\/p>\n

One might well ask: What is Facebook\u2019s business model, and why do so many seem so interested in its new venture? It could be that they want a cut of the rents accruing to the platforms through which transactions are processed. The fact that they believe that more competition won\u2019t drive down profits to near zero attests to the corporate sector\u2019s confidence in its ability to wield market power \u2013 and in its political power to ensure that government won\u2019t intervene to curb these excesses.<\/p>\n

With the US Supreme Court\u2019s renewed commitment to undermining American democracy<\/a>, Facebook and its friends might think they have little to fear. But regulators, entrusted not just with maintaining stability, but also with ensuring competition in the financial sector, should step in. And elsewhere in the world, there is less enthusiasm for America\u2019s tech dominance with its anticompetitive practices.<\/p>\n

Supposedly, the new Libra currency\u2019s value will be fixed in terms of a global basket of currencies and 100% backed \u2013 presumably by a mix of government treasuries. So here\u2019s another possible source of revenue: paying no interest on \u201cdeposits\u201d (traditional currencies exchanged for Libra), Facebook can reap an arbitrage profit from the interest it receives on those \u201cdeposits.\u201d But why would anyone give Facebook a zero-interest deposit, when they could put their money in an even safer US Treasury bill, or in a money-market fund? (The recording of capital gains and losses each time a transaction occurs, as the Libra is converted back into local currency, and the taxes due seem to be an important impediment, unless Facebook believes it can ride roughshod over our tax system, as it has over privacy and competition concerns.)<\/p>\n

There are two obvious answers to the question of the business model: one is that people who engage in nefarious activities (possibly including America\u2019s current president) are willing to pay a pretty penny to have their nefarious activities \u2013 corruption, tax avoidance, drug dealing, or terrorism \u2013 go undetected. But, having made so much progress in impeding the use of the financial system to facilitate crime, why would anyone \u2013 let alone the government or financial regulators \u2013 condone such a tool simply because it bears the label \u201ctech\u201d?<\/p>\n

If this is Libra\u2019s business model, governments should shut it down immediately<\/a>. At the very least, Libra should be subject to the same transparency regulations that apply to the rest of the financial sector. But then it wouldn\u2019t be a cryptocurrency.<\/p>\n

Alternatively, the data Libra transactions provide could be mined, like all the other data that\u2019s come into Facebook\u2019s possession \u2013 reinforcing its market power and profits, and further undermining our security and privacy. Facebook (or Libra) might promise not to do that, but who would believe it?<\/p>\n

Then there is the broader question of trust. Every currency is based on confidence that the hard-earned dollars\u00a0\u201cdeposited\u201d into it will be redeemable on demand. The private banking sector has long shown that it is untrustworthy in this respect, which is why new prudential regulations have been necessary.<\/p>\n

But, in just a few short years, Facebook has earned a level of distrust that took the banking sector much longer to achieve. Time and again, Facebook\u2019s leaders, faced with a choice between money and honoring their promises, have grabbed the money. And nothing could be more about money than creating a new currency. Only a fool would trust Facebook with his or her financial wellbeing. But maybe that\u2019s the point: with so much personal data on some 2.4 billion monthly active users, who knows better than Facebook just how many suckers are born every minute?<\/p>\n

______________________________________________<\/em><\/p>\n

\"\"<\/a>Joseph Eugene Stiglitz is an American economist and a professor at Columbia University. He is a recipient of the Nobel Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a former senior vice president and chief economist of the World Bank and is known for his critical view of the management of globalization, free-market economists (whom he calls “free market fundamentalists”), and some international institutions like the International Monetary Fund and the World Bank.\u00a0Stiglitz is the author of <\/em>The Price of Inequality and <\/em>most recently of<\/em> People, Power, and Profits: Progressive Capitalism for an Age of Discontent<\/a>.<\/p>\n

Go to Original \u2013 project-syndicate.org<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

2 Jul 2019 – Only a fool would trust Facebook with his or her financial wellbeing. But maybe that\u2019s the point: with so much personal data on some 2.4 billion monthly active users, who knows better than Facebook just how many suckers are born every minute?<\/p>\n","protected":false},"author":4,"featured_media":136974,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[105,62,55,60,146],"tags":[910,232,1246,354,1007,1226,176,287,1006,1109,911],"class_list":["post-136973","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-nobel-laureates","category-media","category-capitalism","category-whistleblowing-surveillance","category-economics","tag-big-brother","tag-capitalism","tag-cryptocurrency","tag-economics","tag-facebook","tag-libra","tag-money","tag-power","tag-social-media","tag-spying","tag-surveillance"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/136973","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=136973"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/136973\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/136974"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=136973"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=136973"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=136973"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}