Now Facebook wants to be your bank
Sceptics point out the hazards of handing over information about our personal finances to a company that profits so much from our data
Having exposed the personal details of tens of millions of its users and broken the concept of personal privacy, Facebook is going to ask people to trust it with their money.
That’s one cynical interpretation of last week’s headline-grabbing launch of a cryptocurrency that it claims will make "moving money around the world … as easy and cheap as sending a text message".
Well, it’s not Facebook itself, but a consortium of Big And Important Names in tech, payments and telecoms that will run the blockchain-based libra currency through a standalone nonprofit company called the Libra Association, which will be based in Switzerland.
These firms include the major payment companies Mastercard, Visa, PayPal and Stripe, as well as Naspers’s fintech arm, PayU. But it also includes eBay, Uber, Lyft, Spotify, Vodacom parent Vodafone and venture capital firm Andreessen Horowitz.
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Facebook says its customers will use a wallet from its new Calibra division to use libra.
"We believe," libra states in its ideologically optimistic white paper, "that the world needs a global, digitally native currency that brings together the attributes of the world’s best currencies: stability, low inflation, wide global acceptance and fungibility."
It says its currency will be underpinned by assets. The founding members have all deposited $10m and every time someone buys a libra coin, that dollar/euro/rand will be held in reserve against the libra coin. Unlike the wildly fluctuating bitcoin, Facebook says libra will be pegged against its deposits and that of the investors.
Quoting the World Bank’s figures, libra argues that there are 1.7-billion people worldwide who "remain outside the financial system with no access to a traditional bank, even though one billion have a mobile phone and nearly half a billion have internet access".
However, the how, what and where of the new system weren’t mentioned. Immediately after its announcement, commentators began tearing the libra idea apart.
"Spoiler alert," warns the Financial Times’s Alphaville column, "it’s a glorified exchange traded fund which uses blockchain buzzwords to neutralise the regulatory impact of coming to market without a licence as well as to veil the disproportionate influence of Facebook in what it hopes will eventually become a global digital reserve system."
The Open Markets Institute’s Matt Stoller sounds another warning: "A permissionless currency system based on a consensus of large private actors across open protocols sounds nice, but it’s not democracy. Today, American bank regulators and central bankers are hired and fired by publicly elected leaders. Libra payments regulators would be hired and fired by a self-selected council of corporations. There are ways to characterise such a system, but democratic is not one of them."
Central banks around the world have expressed their scepticism.
And more critics of Big Tech, which hasn’t covered itself in glory, have also emerged.
In the past two years there have been innumerable scandals over disinformation, compromised personal data and passwords stored in unencrypted plain text.
Despite the belief that libra will bring blockchain and cryptocurrency into the mainstream, there are enough reasons to fear Facebook getting even more access to our personal data and habits.
Facebook is a business, whose prime reason for being is to make money, not to give the unbanked access to digital money.
"We are all increasingly aware of how much money Facebook makes from our data," says Joe Lubin, the co-founder of the ethereum cryptocurrency.
"What happens when you wrap your personal finances up in this too? That our digital identity will never merge with libra’s financial data is a hard perception to shake."
Remember when Facebook said it wouldn’t merge WhatsApp and Instagram data with its primary social network? It then promptly did that and has been fined repeatedly by various European privacy and competition watchdogs. Has that changed Facebook’s behaviour? Of course not.
As Stoller says: "Imagine Facebook’s subsidiary Calibra knowing your account balance and your spending and offering to sell a retailer an algorithm that will maximise the price for what you can afford to pay for a product."
It gets worse. "Imagine this cartel having this kind of financial visibility into not only many consumers, but into businesses across the economy," he adds. "Such conflicts of interest are why payments and banking are separated from the rest of the economy in the US."
In one scenario, Uber, as a founding member, could offer libra-linked riders discounts, which would give it a strategic advantage over other ride-sharing firms.
As Lubin says: "Facebook’s cryptocurrency is a centralised wolf in decentralised sheep’s clothing."
You have been warned.