The US government shouldn’t even be entertaining the idea that Facebook be allowed to create its own currency and financial-services arm — Libra and Calibra, respectively. The company has done nothing but demonstrate that it cannot be trusted with global financial transactions.
In June, Facebook announced that it — along with companies like Spotify and Visa — would create a convertible virtual currency (CVC) called Libra to be used on its platform. Facebook would also create a financial-services arm called Calibra, which would initially offer a digital wallet for Libra and then expand to other banking services like savings and loans. These entities are to be headquartered in Switzerland through a nonprofit called the Libra Association.
This matter has been a subject in congressional hearings for a couple of weeks now. But that should all just be a formality — an opportunity for Facebook to make its case to the public, after which a bipartisan group of legislators, the US Treasury secretary, the chairman of the Federal Reserve, and every other regulator who has examined this issue can come together and give Facebook the answer it deserves: No.
Because of Facebook’s size and reach, this currency would instantly become “systemic,” as they say in the world of banking. That means the platform will immediately have to grapple with all the darkest corners of the financial system, like terrorist financing and money laundering. These are difficult to control for even developed sovereign nations.
For smaller countries where the currency is weak and limited, there are even more obvious challenges because of Facebook’s size. Citizens might turn so much of their currency into Libra that it forces their currency down, for example.
“Monetary policy might end up being set for areas all over the world by a board of largely Western companies located in California with a pot of hard currency-denominated assets in a potentially unregulated Swiss reserve, rather than by democratically accountable sovereign governments,” Matt Stoller, a researcher at the anti-monopoly think tank the Open Markets Institute, wrote.