Thus far, we have defended Facebook’s new cryptocurrency Libra against the vague and specious charge that it is somehow undemocratic–vague because democracy is open to many different definitions; specious because existing currencies are not responsive to majority rule in any meaningful sense. What about the other objections to Libra we identified in our previous post?
- Money laundering, tax evasion, and other financial evils. To begin with, critics like Matt Stoller allege that Facebook’s new currency could facilitate money-laundering, terrorist financing, tax avoidance, and counterfeiting. But this has to be the worst possible argument against Libra, for the same technology that makes these sundry financial evils possible also make it possible to detect (and punish) such evils in the first place!
- National security concerns. Matt Stoller also alleges–without any evidence, I might add–that the success of a private parallel currency like Libra could undermine the current system of economic sanctions that the U.S. and other countries have imposed on bad actors like Russian oligarchs and rogue nations like Cuba and North Korea. I would make two replies to this argument. For starters, even if this allegation were true, it’s not clear whether economic sanctions really work to begin with. Secondly, I would reiterate my technology argument above: a well-designed electronic currency might actually make it easier to uncover the clandestine efforts of rogue actors to get around economic sanctions.
- Hacking threats. In his op-ed, Mr Stoller asks, “what happens if there is a theft or penetration of the [Libra] system?” In reply, I would make two points. First, I would concede that hacking no doubt poses a serious risk but that this risk is not unique to Facebook’s new currency–all Internet platforms are susceptible to this risk. But more importantly, I would also argue that Facebook has a strong incentive to protect its currency from hacking. In fact, if any business firm is in the best position to develop new solutions to hacking threats, it is probably Facebook and other Big Tech firms like Google, Amazon, etc.
- Conflicts of interest. In his anti-Libra op-ed, Stoller writes: “It’s also possible that insiders belonging to the Libra cartel could exploit their access to information, business relationships or technology to give themselves advantages …. For instance, one of the incentives being discussed to get people to use the currency is discounts on Uber rides; if this happens, Facebook would be giving an advantage to Uber instead of other ride-sharing businesses.” Alas, the problem with this line of reasoning is that it ignores the basic risk-reward calculus that spurs economic progress and positive-sum games. To borrow Stoller’s same example, if a startup like Uber is willing to take a risk backing Facebook’s new currency, then Uber deserves the economic rewards that go with taking this risk.
To sum up, the myriad arguments against Facebook’s new currency are weak and unpersuasive. But we still haven’t made an affirmative case for Libra. We will do so in our next blog post.