Facebook’s plans to introduce a new cryptocurrency, called Libra, into an already busy marketplace, have sparked another debate on the potential of wider adoption of cryptocurrencies and their impact on global economies.
A centralised cryptocurrency backed by an association of large multinational companies – such as Facebook, Mastercard, eBay, Vodafone, and other members of Libra – has the potential for mainstream adoption, given a regulated value and consumers’ trust in these companies that regulate it.
However, an association that would act as a central bank which oversees that cryptocurrency, backed by currency and asset reserves – as the Libra association is planned to be – could have a fundamental impact on the global financial system and people’s lives.
Expansion of a Libra-like currency poses a threat
Such a new cryptocurrency raises a potential threat for fiat currencies (currencies issued and regulated by governments), the monetary policy control of governments, and, in more far-reaching terms, for individual freedom and democracy. Indeed, the replacement of institutional central banks and currencies by those run by corporate-backed associations may be seen as a shift from democracy to corporatism.
Setting aside the matter of privacy, this means that decisions affecting the economic fate of countries will not be taken by elected governments, but by boards and stakeholders instead, which has already seen concerns raised by several financial regulators.
There is an obvious moral hazard if an institutional mechanism (the monetary policy control of central banks) that aims to maximise a population’s welfare, is delegated to a private entity that is bound to maximize shareholder profits, even against the interests of that country’s population.
What the evolution of cryptocurrencies means
Overall, seeing the evolution of a potentially world-changing project in history is fascinating in itself, but the potential for a centralised (crypto) currency backed by big multinationals is interesting in two ways. Firstly, it reflects the convergence towards universalisation of the world and the increasing significance of tech companies in our lives. But secondly and most importantly, it underlines the fundamental aspect of trust in economic exchanges and poses a question that needs further thought: Can people trust corporations more than governments and institutions?