Tomorrow, Facebook is set to unveil its own currency, because that’s a thing companies do now. It’s a throwback to 19th-century coal and lumber companies that would pay workers in scrip. But in this case, Facebook has 2.5 billion users instead of a few thousand laborers, giving it the potential to dominate the payment system.
The cryptocurrency, known as Libra, got a huge boost last week, when over a dozen companies agreed to back it, including Visa, MasterCard, PayPal, Stripe, and Uber. Unlike bitcoin, Libra will be pegged to various international currencies, so it theoretically won’t swing widely in value (the term for this, which you don’t need to know, is a stablecoin). Facebook users could share the coins with each other, purchase items on Facebook, or even on other websites that agree to take it.
Technically speaking, Facebook won't control Libra. But you can easily imagine a world in which products on Facebook only accept Libra as payment, or paying with Libra grants access to discounts. And of course, tracking Libra purchases makes the data Facebook uses for its real business—serving ads—even more powerful. Adding a payment revenue stream to the ad revenue could expand Facebook's control over the economy.
As Facebook is global, Libra would serve as a global currency, usable in countries without needing to exchange dollars for pesos or euros. That raises significant questions for monetary policymakers and banking regulators. If Libra is backed by a basket of currencies, which country would actually be responsible for storing the reserves? And what if one of the currencies collapses, and citizens of that state plow their money into Libra? Will a global stablecoin facilitate hot money flows during a crisis and make things even more, well, unstable?
Facebook probably doesn't care much about those questions. It clearly wants to emulate WeChat, the Chinese social media app with a payment option that has essentially replaced paper money in China. I have written before that payment systems represent the final piece for world domination by the tech giants. Getting the credit card networks involved in particular could make Libra the accepted next-generation payment architecture: It’s almost as if Visa and MasterCard are resigned to tech industry disruption. Wall Street analysts love the idea, even if it might render their employers obsolete.
The rest of us may ask whether we really want so much dependency on Mark Zuckerberg to buy groceries.
