In Zuck we trust?
With the hearing of Mark Zuckerberg before the US Senate Committee on Energy and Commerce, the Libra project has returned to the public spotlight. Being able to establish a good relationship with the institutions is vital for Facebook today, because the success of Libra cannot be separated from the support or neutrality of the regulators who control monetary policy at national and international level.
The young Mark has passed quite well the test of the senators who have grilled him on all the thorny issues related to the activity of Facebook.
But on the Libra project, the question that looms is truly existential: "Can we trust Mark Elliot Zuckerberg?". Can we trust him enough to open the doors to an aspect as vital, strategic and of general interest as that of money?
Regulators and central banks have already provided a first and perhaps hasty answer to this question. Then a new question arises about the regulators themselves. This: "Is the defense of the status quo a satisfactory response to the changes that come from civil society and does it go in the direction of the general interest?".
We asked these questions to Nicola Attico, author of the recently published volume, Libra, the gold of Facebook. How currencies will change our lives (published by Guerini and in ebook in co-edition with goWare). In 2018 Attico published, with GueriniNext, also an essay on the Blockchain, Blockchain. Ecosystem guide (also available in ebook).
Here is Attico's opinion on the matter. Enjoy the reading!
A Brief History of Libra
Libra is Facebook's new digital currency, based on the homonymous one blockchain. It was announced in June 2019 by an initial lineup of 28 organizations, including Calibra, a Facebook group company led by David Marcus, and heavily sponsored by Mark Zuckerberg.
In particular Libra is one stable coin, which is a currency backed by traditional assets fiat such as the dollar, euro, pound, yen, designed to maintain - unlike Bitcoin and many other cryptocurrencies - a stable value over time.
The announcement was followed by a sequence of global reactions from central banks, and sometimes even from heads of state, aimed at highlighting the supremacy of national currencies and the multiple risks that Libra poses for the financial system.
October 11, 2019, following Marcus' hearing before the Senate and a few days before the appointment of the Association's board of directors, was Libra's "Black Friday". Heralded by the disengagement of PayPal, in view of the formalization of the engagement in the project, it saw the departure of Visa, Mastercard, Stripe, Ebay, MercadoPago and was followed the following week by Booking.com.
On Tuesday, Oct. 15, following the storm — and just days before another Zuckerberg hearing in Congress — the Libra Association, incorporated under Swiss law, named its board of directors from among its remaining 21 founding members. It was a very critical transition, nevertheless necessary to give the Association a truer and more stable form, on the basis of which to give life to the project and begin to embark new companies.
The role of regulators
What is the reason behind these defections? Why do they mostly happen in the financial sector? The reason is obviously linked to the reactions of regulators, including the central banks of many countries around the world, and the implicit threat of "regulatory retaliation" towards the companies that are part of them.
Regulators' concerns concern anti-money laundering laws and financial stability. However, if these were the actual motivations, everything would point towards a more gradual approach, in which the adoption of technology can be progressively developed, released and analyzed.
For example, anti-money laundering processes are still extremely ineffective today, based on bank reporting and manual data checking. It is estimated that they catch a relatively small fraction of the wrongdoing. Instead of reducing the blockchain in general, and Libra in particular, it could improve the visibility of transactions, which can be more easily investigated, even by algorithms.
Instead, it is legitimate to state that the main concern of the regulators, under the political influence of the States, is to protect one status quo I am in control of this, compared to an evolution of which, however, I am not equally able to control the path. Protection, or perhaps we should say protectionism, towards a traditional financial system that is increasingly resistant to innovation, which is often subjected to it rather than promoting it.
Furthermore, the landscape of regulators is extremely jagged, geographically nationalized, sometimes colluding with governments concerned with their own sovereignty and authority rather than with the objective improvement of services to citizens.
Are regulators actually acting in the public interest?
Even without having any particular sympathy for Facebook (and who has any more?) one can consider the way of reasoning and intervening on the markets of the regulators - as well as increasingly antiquated - substantially wrong from the point of view of the common welfare.
Is this really the way we think it makes sense to govern innovation on a global scale? Who benefits from regulators' vetoes? Wouldn't it be appropriate for regulators to have a role of driving innovation, rather than maintaining the status quo?
Making an analogy, it is like opposing in all possible ways the reforms necessary for the reduction of global warming - now scientifically recognized. Because such reforms would impact the status quo of manufacturing sectors, such as manufacturing and automotive, leading to job losses and increased instability.
However, there will be job losses and instability, and at the same time we will have lost the opportunity to act proactively on the most effective and rational solution. We would have stalled development for years and lost the opportunity to build new skills and jobs.
Based on this line of reasoning, those who support Bitcoin and condemn Libra should not be deluded, the step is rather short in believing that all crypto projects are illegitimate, especially those that are totally decentralized like Bitcoin.
Furthermore, many cases have shown that more decentralized projects have a higher resistance to direct attack (thanks to the open peer-to-peer network characteristics, compared to distributed ledger such as Libra). The regulator attack can easily drastically slow down the adoption of the technology by users and the value of the assets in question.
A paradigm shift is needed
We all respect the role of regulators to minimize risk to all of us and to minimize wanton deregulation and Far West of large corporations. However, it is legitimate to think that we can do better and that a change of gear is necessary even in the inherently conservative world of regulators. However, a greater level of coordination on a global scale is needed.
The willingness to learn and experiment with new technologies should prevail over pure closure with respect to the new, in particular those now widely recognized such as the blockchain, especially in the financial sector.
You can for example:
● experimenting with new technologies in controlled contexts;
● progressively open them to some markets, where the benefit can be more immediate and measurable;
● understand its benefits and functioning;
● give indications along the way for companies intending to embark on an innovation path;
● provide clear times and constructive communications, rather than based on proclamations and utterances (as in the honestly unedifying case of Libra).
The attempt to protect banking institutions against the barbaric invasion of TechFin companies is however doomed to fail, because - as in all markets - in the end it is the customer who decides and the customer is asking for simpler and more fundamentally rethought services. Nobody wants to go to the branch anymore to open a current account, sign documents or collect a checkbook, and it's not just the younger people.
China is ahead
Global economies are now dominated by platforms that include users' financial experience. In the East, at the forefront of technology applied to finance, Alibaba and Tencent dominate the financial landscape and cash and credit cards are now practically absent, having popularized wallets and digital currencies.
These companies will soon be ready for a process of colonization of the West, dominated by protectionist attitudes, while the central bank of China — the powerful People's Bank of China (PBOC) — is close to releasing its Central Bank Digital Currency, a cryptocurrency albeit centralized, called DC/EP, for Digital Currency Electronic Payment.
Facebook, in the name of the Libra Association, has repeatedly declared its intention to work with regulators to identify a correct regulatory approach that will have to be identified in one way or another. However, the opening reactions to the discussion were still very few.
Managing innovation
I believe that Libra deserves the attention of all of us today, to prevent a fundamental issue such as the management of innovation from being "used" to defend the unilateral interests and points of view of states and financial lobbies, often misaligned with the interests of citizens and consumers. The crypto community itself should support this approach, in the wake of the participation of companies such as Anchorage, Bison Trails, Coinbase and Xapo.
Even Social Impact Partners, such as Kiva, Mercy Corps, Women's World Banking, who work closely with the financially underserved populations of low-income countries, who could most benefit from a project like Libra in the short term, can express in the value of a currency independent of state control in an effective and understandable way for public opinion.
The appeal is therefore to think with your own head on the subject of Libra and define your reasoned opinion on the project. Ask yourself if you agree on the way states and regulators are managing innovation and if you are ready to accept that technologies logically consistent with our problems are ostracized to defend the status quo, letting smaller projects live, but trying to sabotage those that can have a more concrete and substantial impact.
To find out more about Libra, you can read on Libra, the gold of Facebook. How alternative currencies will change our lives by Nicola Attico, 2019, ed. GueriniNext (in collaboration with goWare for the digital edition).
