ILLUSTRATION: MIKE MCQUADE035 STARTA sign that a sector of the economy
is becoming too big is that it attempts
to dictate government policy. In the
financial sector, for instance, markets
“discipline” governments by threat-
ening to dump their currencies and
bonds if they act in ways investors
don’t approve of. In manufacturing
and retail, corporations lobby for
changes to employment law and tax
breaks. And oil companies have histori-
cally held sway over their governments’
foreign policy calculations.
But when a sector becomes really
gargantuan, it doesn’t just dictate to
governments – it aims to replace them.Silicon Valley tech giants have been
uneasy collaborators with governments,
as they are obliged to use legal tender
to monetise their businesses. When
a company uses government-issued
currencies, that gives governments
the right to regulate and control the
company’s activities. And while govern-
ments have been weak regulators of
Big Tech, that is starting to change.
Silicon Valley giants are facing finesand regulatory action for tax evasion,
opaque practices, and dominant market
positions; second-wave giants such as
Uber and Deliveroo are also under fire as
a result of their employment practices
and flouting of regulations.
Enter Libra, a new virtual currency
Facebook announced in June 2019.
Libra is the creation of the Libra
Association, an organisation based in
Switzerland. Facebook initiated it and
brought in 27 other members – mostly
Silicon Valley tech firms and payments
companies which have goals tightly
aligned with those of Facebook.
Those wishing to use Libra for
transactions on Facebook’s platforms
would purchase Libra “coins” using
fiat currencies. That money would go
into Libra’s reserve, to be invested in
assets denominated in a “basket” of
currencies. The assets in the reserve
would be actively managed to keep
the value of Libra stable vis-a-vis the
currency basket as a whole, though it
might not be stable against individual
currencies. We don’t know exactly
what the Libra reserve’s asset portfolio
would comprise, but Libra’s technical
manifesto suggests that it would include
a substantial proportion of “safe” assets
such as government debt and cash.
The project could potentially have
an enormous impact. Currently,
an estimated 2.7 billion people
use Facebook and its subsidiaries
WhatsApp and Instagram. If all these
people adopted Libra as their primary
medium of exchange, then Libra would
be used by approximately a third of the
world’s population. Admittedly, more
people currently use the US dollar,Libra’s true cost:democratic rulewill pay the priceFacebook’s virtual currency has the potential to
dominate the financial markets – and give the
tech giant the power to dictate to governmentsFrances Coppola is a
finance and economics
writer, and the author
of The Case for
People’s Quantitative
Easing (Polity Press)<11-19-SToped.indd 35 16/09/2019 14:30