By Jose Miguel Alonso-Trabanco
Last month, Facebook publicly announced that it’s preparing to launchits own cryptocurrency, called Libra, in 2020. The initiative’sofficial website claims it intends to “reinvent money,” “transform theglobal economy,” and “empower billions of people.” Not surprisingly,these ambitious plans have captivated the attention of strategic circlesall over the world.
Given Facebook’s size, the cryptocurrency could be a game-changer.
In order to keep things in perspective, it is important to highlightthat the currency would operate through platforms like Facebook (whichhas more than two billion accounts) and WhatsApp (said to be the world’slargest texting app) using a digital wallet called “Calibra.” Moreover,the project’s partners include heavyweight business conglomerates likeUber, Mastercard, PayPal, Spotify, eBay, along with some investmentfunds and even non-profits and academic institutions.
Interestingly, the value of Libra will be determined by a basket ofcurrencies – the US dollar, the euro, the pound sterling, and theJapanese yen – bank deposits, and US Treasury securities. In otherwords, rather than being a stateless currency, it would operate as amultilateral derivative of several national currencies, all of which areissued by Western powers and one of their key geopolitical allies.Furthermore, the currency’s operational and policy headquarters will belocated in Geneva, Switzerland, a spot chosen because of the legendarySwiss tradition of neutrality, its prestigious financial know-how, andits openness to technological innovation.
That makes it remarkably different from already existingcryptocurrencies. For instance, even though Bitcoin has gained somepopularity as a medium of exchange in some very specific sectors –including the illicit markets that flourish in the deep corners of theDarknet – it behaves as a speculative asset due to its wildly volatilevalue. Hence, it cannot properly perform as either unit of account orstore of value – roles that money has to fulfil in order to be regardedas such.
Bitcoin’s performance has been compared to that of the historicalphenomenon known as Tulip mania, a speculative frenzy that took place inthe context of the Dutch Golden Age. Initially, the arrival of tulipbulbs to Europe as luxurious novelty items triggered a craze that madethe commodity’s price reach extraordinarily high proportions – wellbeyond reasonable levels of intrinsic value – in financial markets, dueto expectations of profits that were increasingly out-of-touch withreality. Eventually, the artificial bubble drastically imploded.
Another case worth analyzing is the Petro, a cryptocurrency launchedby the Venezuelan government and whose value was to be allegedlyanchored to assets like oil, gold, and diamonds. Although it was said tobe backed – at least nominally – by a national state, Venezuela’sconstant political turmoil, disastrous economic mismanagement, andwidespread financial chaos are structural factors that underminereliability and functionality. Under such conditions, the Petro canhardly be taken seriously. Thus, it has not taken off in any meaningfulway.
Therefore, unlike other cryptocurrencies Libra can attain thecritical mass that is needed in order to become highly competitive soits potential can be accurately described as disruptive. In fact, agroup of US congressmen – all of them members of the Democratic Party –wrote a letter addressed to Facebook’s top decision-makers, asking themto freeze the project because it might eventually spark unforeseenconsequences in terms of national security, monetary policy, andprivacy. Tellingly, the letter even mentions the need to protect USnational interests related to the dollar’s monetary hegemony and also toAmerican unmatched supremacy in global financial governance.
Those concerns are neither unreasonable nor unjustified. In order tounderstand what motivates them, several issues need to be examined.
First of all, Mark Zuckerberg, Facebook’s CEO, truly believes in theimportance of transcending national borders in order to build a “globalcommunity” through overlapping networks of connections enabled by ICT,as reflected in the ideological manifesto he published back in early2017, shortly after the political rise of several nationalist forcesthroughout the Western world. Actually, other idealistic thinkers andintrepid businessmen have held similar dreams.
However, according to the dictates of realpolitik, what is ideal andwhat is possible are two very different things. For instance, as anational state, the US is neither politically nor economicallymonolithic. Its complex polity encompasses countless different sectorsand actors whose interests are often difficult to reconcile. AlthoughFacebook is certainly one of the crown jewels of American big tech firms(along with others like Google, Apple, Amazon, Twitter or Netflix),that fact does not necessarily means the national interests of theUnited States are always completely aligned with those of individualcompanies.
On the other hand, it is still unclear if Wall Street – a keycomponent of US national power in the field of finance and closelyrelated to the country’s senior political elite – will enthusiasticallywelcome the arrival of a challenger that could substantially diminishtheir market shares and profit margins both at home and abroad. In thebest-case scenario, a complex negotiation process would have to occur inorder to reach a mutually acceptable compromise.
Another factor worth considering is that a digital currency linkedsimultaneously to the currencies of Western powers makes sense from aneconomic viewpoint. Their GDPs are robust and their developed financialcircuits are both dynamic and reliable. Nevertheless, now thattransatlantic relations are being reshuffled – as reflected in NATO’s uncertain prospects and the European Union’sdecision to heavily fine Google over antitrust violations – thepolitical foundations of Libra would be rather shaky. This criticalissue would then have to be overcome, addressed, or somehow bypassedaltogether. Needless to say, it is not an easy challenge under thepresent circumstances.
Furthermore, the US dollar is not just backed by economic strength.Its hegemonic position as global reserve currency is also tacitlysupported by American power projection capabilities, including aircraftcarriers, stealth bombers, special operations squads and nuclearweapons, amongst others. Nothing even remotely similar can be said aboutLibra. In the event that drastic geopolitical tensions threatened toderail Libra in some substantial way, who or what could protect it fromthese disruptive forces?
Additionally, a digital currency is – by definition – vulnerable tocyber-threats fueled by geopolitical, economic, and sometimes evencriminal interests. In fact, computational algorithms can be hacked andreprogrammed into making erratic decisions. Thus, a prospective attackercan weaponize them in order to unleash systemic chaos and instability.Reports about the alleged involvement of Russian intelligence in theimplementation of malware that targeted the NASDAQ stock exchange a fewyears ago must be borne in mind as a cautionary warning that the spacewhere finance and high-tech meet is not immune from geopoliticalinterference. It would be naïve to think otherwise.
Likewise, it is also pertinent to wonder if the project’s developershave envisaged the implementation of measures meant to secure itsinstitutional structures by minimizing or deterring the risk ofinfiltration from covert operatives who might ultimately respond withhostile agendas. So far, it is unclear if this will be taken care ofsomehow, but it is important to highlight that digital firewalls willnot suffice to do so.
Last but certainly not least, Libra’s push towards internationaldecentralization might fuel or accelerate a potential bifurcation of theglobal financial system and thus strengthen the prospects of newpossibilities in an increasingly competitive ecosystem.
For instance, the Eurasian powers – notably China, Russia, and Iran –have been trying to challenge the enduring Western control overinternational finance. China has even established institutionalframeworks and structures that operate as parallel counterparts of theirWestern equivalents. In a foreseeable future, the rise of a digitalcurrency – operated through Asian technological platforms like WeChat –and supported by assets like gold or currencies like the yuan is ahypothetical possibility that deserves to be taken into account.
Although its actual future is still uncertain, Libra raises relevantquestions, some of which remain unanswered. However, the project’smultidimensional ramifications illustrate the growing complexity ofglobal phenomena which are being shaped by a myriad of shiftingtechnological, economic, financial, and geopolitical factors.
The views expressed in this article are those of the author alone and do not necessarily reflect Geopoliticalmonitor.com or any institutions with which the author is associated.
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