Editor’s Note: For an alternative viewpoint, please see Point: Even in Money, Competition is Good.
Credit Facebook with this: The company sure is audacious.
In June, Facebook announced plans to start a new global currency. Think about that. If it sounds troubling to you, trust your instincts.
Maintaining a monopoly over establishing the currency and making new coins is a defining feature of national sovereignty. Facebook wants to abrogate that right to itself — and do so on a worldwide scale.
What could go wrong?
A lot. In fact, the risks are so great that regulators around the world should shut down this new initiative before it gets off the ground.
Let’s start with the easy-to-understand issues. Facebook has an atrocious record of protecting consumer privacy. The Cambridge Analytica scandal made clear how little Facebook has done to protect privacy, but that’s just one in a long list of examples.
Why then would we trust Facebook withholding data on billions or even trillions of transactions around the world? Facebook says it’s creating a new subsidiary that will hold this data and not share it with other parts of Facebook. Why should we trust this? Facebook is right now tearing down walls between Facebook, Instagram and WhatsApp that it had previously said it would protect.
Whether or not Facebook maintains this wall of separation, the new currency will enable it to glean even more information about its users, enabling it to engage in even more troubling advertising targeting and manipulation of consumers.
There are broader consumer protection issues that arise, as well. With an international platform using an international currency, it will be exceedingly difficult for regulators to crack down on bad actors who do business in the new Facebook currency. What happens when a lender in, say, Ukraine — perhaps failing to disclose where it is from — illegally tricks people into borrowing from them and then imposes improper fees, charges and super high interest rates? How is a U.S. regulator going to do anything about that? Even more, what chance does a regulator in, say, Kenya have of preventing such abuses?
There are serious questions that don’t involve traditional scams, too. For example, will Facebook and its corporate partners be able to gain information enabling them to price discriminate against users? How might that exacerbate racial inequalities?
The proposal also seems almost certain to exacerbate Facebook’s excessive market power and undermine competition. The risks are too great that Facebook will pull consumers into a closed Facebook ecosystem that will disadvantage competitors and consumers. It’s easy enough to imagine, for example, Facebook and its partners disfavoring competitors, including by excluding them, offering discounts to Libra partners, or punishing those using alternative private currencies. If Facebook’s plans get to scale, then exclusion of competitors would be utterly devastating.
Even more profound than the consumer protection and antitrust issues are matters of national sovereignty. For smaller countries, the Facebook currency could displace the national currency, undermining the ability of national governments to maintain control of their monetary policy. If countries’ currencies come under attack, the Facebook currency could exacerbate the problem. Even bigger countries will face seemingly insurmountable problems: the Facebook currency seems designed to enable money laundering and to facilitate tax evasion and tax fraud. It also seems to provide a mechanism to facilitate evasion of economic sanctions.
In announcing the currency proposal, Facebook has made a number of claims and promises that would address some of the possible problems with its plans (though not most of them). But Facebook’s promises aren’t worth much at all. Even if Mark Zuckerberg and Facebook executives truly intend to honor the commitments they are making right now, there is nothing preventing them from changing their minds in the future.
And that’s a problem that speaks to fundamental problem with this whole scheme. Facebook is a corporation with no public accountability and, like other corporations, a singular focus on generating profits. It has no business taking over governmental functions like issuing currency, precisely because it is not accountable and because its mission is to make profits, not advance the public interest.
Facebook’s plans may well fail on their own. But they may not. The corporation’s global reach makes it possible that its new currency could gain widespread usage. Once that happens, it will be exceedingly difficult to prevent the very identifiable dangers inherent in the concept. Regulators should shut down this idea right now.