The Facebook-backed cryptocurrency has economists and lawmakers questioning whether the social media company will become too powerful. Financial experts are split on the societal value of the undertaking.
(TNS) — Facebook recently announced it had formed a subsidiary called Calibra to be a digital wallet for a new cryptocurrency called Libra. Some of Facebook’s partners with Libra are Ebay, Uber, Mastercard, Visa and Thrive Capital. The Libra website says it wants to “help reinvent money and transform the global economy” — with an emphasis on providing a new type of bank for poor people without access to bank accounts.
Much of the reaction has been negative, with financial journalists and government entities worried about Facebook’s power. Some of the cryptocurrency press is excited because they think it could bring legitimacy to cryptocurrency.
Question: Could Libra actually be a good thing for the global economy?
Phil Blair, Manpower
NO: Any new money system whose goal is to “reform the world economy” should not be owned, managed or promoted by private sector, for-profit companies. They do not have the common good in mind. The current monetary system under the Federal Bank is working fine. We do need to encourage development of new and more efficient ways to manage the movement of money, and it should be done under the auspices of secure and fair governments.
Kelly Cunningham, San Diego Institute for Economic Research
YES: With huge potential to disrupt financial systems, the idea marks overdue need for online commerce. So long as accepted for financial transactions and national currencies, the impact could be immense. Largely overcapitalized by retail holders with massive, inflated balance sheets, it may be the largest coupon scheme ever devised (sort of sophisticated store voucher system). Backed by a basket of bank deposits and short-term government securities of various major currencies, wild price speculations may be contained.
David Ely, San Diego State University
YES: Many individuals, especially in developing countries, have limited or no access to banks. Libra has the potential to make financial services more accessible to these individuals. Along with a means to transact with merchants, Libra could become a low-cost way to transfer funds internationally and a stable store of value in countries with volatile currencies. But for Libra to become widely adopted, concerns associated with trust, privacy and governance will have to be addressed.
Gina Champion-Cain, American National Investments
Not participating this week.
Alan Gin, University of San Diego
YES: It could provide access to banking in countries where the financial infrastructure is weak and there is concern about the stability of the financial system. With big players in global finance such as Mastercard and Visa involved, their situation could be more stable than might be the case in some countries. The concern about a concentration of economic power is legitimate, so there needs to be oversight. An interesting issue will be how this affects monetary policy in individual countries.
James Hamilton, UC San Diego
YES: Libra would make it easier for many people in the world to make financial transactions and could provide new economic growth. A common currency benefited members of the European monetary union, making it easier to buy and sell across borders. Libra could provide similar benefits for many people outside Europe. But it’s not without risks, including growth of an unregulated global shadow banking system and making small economies more vulnerable to economic downturns.
Gary London, London Moeder Advisors
NO: The best thing for the global economy is the U.S. dollar. It is the stable currency to which all things are compared. What is the Libra compared to? What is it backed by? The full faith and credit of Facebook? Just like we saw the wild speculation of Bitcoin, I would steer clear of this fun money.
Norm Miller, University of San Diego
YES: Cryptocurrencies are especially useful for international transfers and can be tied to other currencies, dollars, euros, etc., such that they need not involve international currency exchange risk. They are also useful for high inflation countries like those in South America. Most people associate cryptocurrencies with Bitcoin and speculators, but one does not need to hold the cryptocurrency to use it and when combined with “smart contracts” like Ethereum, it can be very useful and efficient.
Jamie Moraga, IntelliSolutions
NO: You must have trust when it comes to your finances. Facebook still lacks that trust factor especially due to their past gaffes with privacy and political manipulation. Globally, Libra is risky. Facebook isn’t a bank and currently isn’t regulated like one. Libra could provide instability to foreign governments, especially if it’s tied to foreign exchange volatility. Central banks could be minimized. Nefarious individuals and organizations could use Libra for money laundering or terrorism funding. Ambiguity remains on how Libra will operate and what the unintended consequences could be globally.
Austin Neudecker, Rev
YES: Many mysteries surround Libra. Can we trust the backers? Do their modifications to accepted blockchain principles create new risks? Is it merely a PR stunt capitalizing on a trend? Nonetheless, the potential for positive impact is there. Look at how WeChat has simplified payments for Chinese consumers. Libra could enable underbanked users to participate in the digital economy and lower the cost of transactions.
Bob Rauch, R.A. Rauch & Associates
YES: Libra, powered by blockchain technology, will be able to handle large transaction volumes. Its value will be tied to major currencies. If Facebook’s 2.4 billion users adopt Libra to shop and transfer money, it could become one of the world’s biggest financial entities. In China, people transfer money to friends and firms within a chat app for virtually nothing, certainly less than U.S. transactions today. Blockchain will be big and is very legitimate.
Lynn Reaser, Point Loma Nazarene University
YES: Libra could make global transactions more efficient by offering a universal currency. Ultimately, Libra might become a universal banking platform, reaching the 1.7 billion adults now lacking a bank account. Many risks and barriers exist. Conversion costs between Libra and local currencies could be prohibitive. Libra holders could suffer losses in the value of their holdings and Libra might ultimately print coins without reserve backing. National policymakers and banking regulators are wary and will place formidable roadblocks in Libra’s path.
Michele Vives, Douglas Wilson Companies
Not participating this week.
Chris Van Gorder, Scripps Health
NO: I’m uncomfortable with a monetary system being developed or supported by private businesses rather than governments. This is unlikely to lead to a stable monetary system. Unless the value is explicitly set and backed by a highly rated financial institution as a payer of last resort, cryptocurrencies will continue to be volatile and risky. Lastly, the anonymity of cryptocurrency allows it to be used for illegal activities and expanding the payment network could compound that problem.
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