Corporate money: why regulators are against the Libra
The US authorities have been hostile to the Facebook’s idea of launching their own cryptocurrency. For them, Libra is dangerous as it expose the state to the risk of loosing its monopoly on emitting money. And that’s a direct threat to the global reserve currency.
Libra is a stable coin from Facebook, which should make financial services available to people around the world who do not have access to banks.The payments themselves are meant to become fast and cheap, regardless of the geolocation of the sender and the recipient of the transfer.
Since Libra is a stable coin, it is secured by a reserve of assets, among which are bank deposits and government securities. And the management is carried out by members of the Libra Association, including Mastercard, PayPal, Visa, eBay, Facebook / Calibra, Lyft, MercadoPago, Spotify AB and other well-known companies.
cryptocurrency from Facebook has not yet been launched, its white paper has already made a lot of noise. Most regulators are wary of Libra and require strict legislative regulation, taking into account all the risks to the global financial system.
The US Congress even demanded to freeze the creation of a stable coin until a corresponding regulatory framework has been created and all the risks and nuances of the payment system operation have been studied. However, during the hearings on the Libra case, the head of the
blockchain division of Facebook, David Marcus, said that although the company is ready to coordinate everything with the regulators, he does not plan to stop the development of cryptocurrency.
It is noteworthy that during the hearings, he also said that in the short term, Libra will not bring Facebook revenues. But the business model itself is designed to increase online commerce on social networking sites, and this will force companies to spend even more money on advertising on Facebook. However it is unknown whether merchants will accept Libra as means of payments.
Why Libra is corporate money
In the event that everybody would be able to pay for goods and services with Facebook stable coin, the coin will be considered a full-fledged monetary ecosystem, which means Libra will take the form of private corporate money.
According to economist Yevgeny Romanenko, money, as a medium of
exchange, is a priori market institution. This means that it is impossible to assign “something” to be money - it is the market that takes some goods for the role of money. That’s how, according to the economist, it was with gold and silver for 4000 years, until the state intervened.
“If Corporation X issues an asset that copes with the role of medium of exchange and is convenient for an unlimited number of people without coercion in this capacity, then it can be called corporate money. This is a subtype of private money,” explains the specialist.
According to him, Libra can be called corporate money, but we must understand that this is not a cryptocurrency. Because it competes not with Bitcoin, but with fiat money. And users of both can easily be limited. In the case of fiat, the state/bank will do it; in the case of Libra, Facebook founder Mark Zuckerberg.
By the way, the Nobel Prize winner, economist Friedrich Hayek wrote about it in his book "Denationalisation of money." Hayek believed that the state’s monopoly on issuing money harmed the economy. Instead, healthy competition between different private money can save the economy from inflation, because people will use the most stable currencies.
At the same time, it is necessary to understand that private money is non-state money that is emitted by private institutional players. Such banknotes went to the USA in the middle of the XIX. Then
tokens could be issued by various municipalities and private companies. Nowadays, such money is outlawed and arouse caution among the mighty. Why regulators fear Libra
According to German
Finance Minister Olaf Scholz, private companies cannot issue money, since this is one of the main functions of a sovereign state. Therefore, it is necessary to do everything possible so that Libra does not threaten world financial stability.
A similar point of view is shared in the US Congress. Even before the hearings with a Facebook representative, a bill appeared that proposes to prohibit technology companies with annual revenues of more than $ 25 billion to become financial institutions and to issue digital assets intended for mass use as a medium of exchange, accounting units or means of accumulation. In the event of a breach, companies may face a fine of $1 million per day.
“The competition of money (which is inevitable economically and theoretically correct) is an Achilles heel for any any government. They know that very well, so their task is to stop any attempts to create private money in the bud, which is a direct threat to their power,” explains the reason for concerns among regulators Yevgeny Romanenko.
According to him, that is why any centralised private money, where there is a provisional Zuckerberg, which can be addressed with claims, is doomed to be attacked by the state.
“Therefore, only decentralised cryptocurrencies have a future - there is no emission centre, which can be “shaken down”. You won’t be able to kill, or crush Bitcoin and government officials are well aware of that. That is why Bitcoin will be the killer of a fraudulent fiat currencies in the 21st century,” believes the economist.
The question of cryptocurrencies’ legalisation has been long hung heavy in the air. However, whether Mark Zuckerberg will succeed in presenting private corporate money into the world — a matter of time, which also depends on the mood of the regulators. G7 is already cautiously looking towards Libra, but it’s not only about the risk of money laundering through cryptocurrencies, but also about the fear of losing the monopoly over the world money management.
Author: Annabella Lapshina