The new currency announced by Facebook and named Libra, Latin for “scale” or “balance”, threatens, according to some commentators, to unbalance the world economy. Libra is said to be symbolic of the arrogance of the tech giants and their claim to world domination (see e.g. Heise online, link at the end of this text). I would argue that we should not stir up fears but take an unbiased look at both opportunities and risks of this initiative.
With Libra, Facebook, together with numerous partner companies, has announced a digital currency that can be used worldwide as a means of payment and is to be technically implemented on the blockchain. However, it is not an actual crypto currency such as Bitcoin, but is characterized by the fact that the deposits in Libra are fully secured by marketable assets. These represent a “basket” of the most important currencies and should therefore guarantee a far more stable exchange rate for the new currency than for true crypto currencies, some of which exhibit extremely high volatilities.
The first objection against Libra, which must be taken seriously indeed, is the suspicion of abuse of user data by Facebook and other partner companies of the Libra Foundation. I believe, however, that the discussion on data protection is not at the heart of the idea behind Libra. In addition, a personal experience from the country, which represents in relation to data security and monitoring of citizens probably the most mentioned daunting example.
Recently, on a trip through China, I saw cash practically only in the dispenser compartment of the ATM and in my own wallet. Regardless of age, education, or occupation, almost all Chinese use the apps Alipay or WeChat to pay for almost all services or purchases. Cash is at the brim of extinction. From the cookshop on the street to the taxi and the subway to the chic art gallery in Shanghai, the question was: “can you pay by Alipay or Wechat? I couldn’t because it required a Chinese bank account. In many shops in Switzerland, I still cause excitement when I pay with my Watch using Apple Pay, as if I were the first person to land on the moon right now and not 50 years ago. Some players in the Swiss financial center have made a somewhat awkward attempt with Twint to counter global trends and “big tech” companies from Silicon Valley with a Swiss solution. Alas, it’s neither elegant nor needed. In a FinTech business model that is not globally scalable, I would not invest a single dollar of venture capital. Especially when the new product solves problems that others have already solved much better and more user-friendly. After all, the wall of Swiss banks against Apple Pay is beginning to crumble, not least thanks to small, innovative pioneers such as Bank Linth, or thanks to economic logic (“growing trend in the demand for mobile payment solutions”) like Credit Suisse.
The backwardness of digital payment systems in some Western countries, and especially in Switzerland, should not be confused with a virtue that makes us the guardian of the Grail of data protection and privacy. Of course, China’s citizens are as transparent as anti-reflective spectacle lenses – the complete control and monitoring is prescribed from above without contradiction and rigorously implemented thanks to the latest technology. But what about the Western democracies? Thanks to social media, smartphones, Google Map, web trackers, networked cars, etc., we have long since become as easy to read as an open book. Thus we have long since lost our innocence and left the Garden of Eden of protected privacy. (Although: hasn’t someone in Eden constantly monitored people and sanctioned their behavior?)
Back to the blockchain-based currency Libra: I don’t want to wipe out the objections regarding data protection. Facebook has long ago lost its credibility in this respect; the careless and unscrupulous handling of user data is probably the true hubris of the tech giant. Regulatory, organisational and technical measures are necessary to improve the protection of one’s own data and to safeguard self-determination in dealing with it: Firstly, the EU has demonstrated with the Basic Data Protection Regulation (EUGDPR) that there are effective regulatory measures that at the same time maintain a certain degree of moderation. The EUGDPR has even attracted attention in Silicon Valley. Secondly, it is important to ensure that governance is organised wisely and safeguards the interests of all parties involved. The suggestions of Facebook and its partners should not be rejected unobserved and blanket. Thirdly, the blockchain provides the technical tools to implement effective data protection on the need-to-know principle.
The second, often heard objection against Libra is at least as relevant as data protection, and probably more far-reaching: the macro-economic effects of such a means of payment, which is secured with “real” assets, can hardly be accurately predicted by anyone. However, most major trends and upheavals happen despite a lack of knowledge of their long-term consequences. In the case of Libra, the global, irreversible trend is the growing need for fast, secure, trustworthy, simple and inexpensive means of payment. Payment methods used by banks and card providers are often neither fast, simple nor inexpensive, but merely meet the criteria of “secure” and “trustworthy”. And even these requirements could be better met by a payment system on the blockchain. This also applies to the requirements of the regulations on the prevention of money laundering, which, to put it simply, are about traceability and documentation of the ownership, origin and use of assets and money transfers.
I recommend that users of digital means of payment observe the “birth” of Libra with curiosity and benevolence, and at the same time apply scrutiny to data security measures. If the benefit is there, and the ecosystem behind Librais trustworthy, I will be one of the first users, like three years ago with Apple Pay in Switzerland.
My recommendation to the commercial and central banks is not to be self-indulged and not to complain about the preservation of vested rights. Rather, the needs of customers and citizens must be consistently placed at the center of all business models and financial systems. The aim is to solve the real problems of real users without taboos, instead of artificially keeping one’s own shortcomings alive. Just as water always finds its way along gravity, thanks to the Internet and digital mobility any business model will find its way past obstacles of established market participants and regulators as long as it follows the “gravity” of customer benefit.
Is Libra an expression of excessive pride in Silicon Valley? Probably (the mission statement of the Libra Foundation reads like the beginning of a famous speech by Martin Luther King). Is it a promising solution to the payment needs of masses of market participants? I’m sure it is.