The euro. The yen. The pound. The almighty dollar. In most economies, the currency is the anchor that holds it all together. But this age-old concept is one we mistakenly take for granted as decentralized cryptocurrencies enter the global stage.
Think about it this way: The traditional definition of capitalism is economic cooperation amongst strangers for mutual benefit. Increasingly, blockchain technology is redefining that for the 21st century. We’re now living in an era when a single company can be wealthier and control more global commerce than a major government. All this is happening at a time when the U.S. is saddled with billions of dollars in runaway debt, and the dollar’s global influence hangs perilously in the balance.
To me, it seems like the perfect storm.
The timing is right for Facebook’s libra and similar cryptocurrencies to become far more influential than anyone — or any politician or any government — ever imagined. Libra is Facebook’s proposed cryptocurrency and is already backed by several large financial companies. And, in case you hadn’t noticed, world governments have been sitting on the sidelines when it comes to the regulation and oversight of such digital currencies. Yes, the Fed and officials from 26 other countries have had an initial meeting, but where do we go from here?
Historically, governments only give a cursory look at potential disruptive technologies and concepts, and only get involved once major problems crop up. We saw this happen most recently during the 2008 Great Recession — it wasn’t until a global market meltdown left economies crippled that governments finally stepped in to create regulation.
In much the same way, the meteoric rise of cryptocurrency and the widespread use of blockchain technology isn’t warranting much global discussion. At the recent G7 summit in France this August, cryptocurrency was nowhere to be found on the agenda, yet I’d argue that it’s an issue that could one day be just as important as climate change.
I can foresee a day — and I would hope that some of our world’s leaders can, too — when a cryptocurrency like libra becomes the major mode of world commerce. When that happens, governments and central banks may be shut out of the currency regulation process altogether. And if central banks suddenly no longer have a role to play, the world economy could be sent into freefall. Looking at these concerns through the lens of 2019 may make them sound a little far-fetched. But keep in mind that everyone thought Michael Burry and John Paulson were crazy when they bet against the U.S. housing market in 2007.
Don’t get me wrong — there are plenty of potential positives as cryptocurrency comes into its own. Today, billions of people in third world countries have no access to banks. Our global financial system is, in reality, not global; rather it’s a patchwork of institutional and governmental systems that often results in high fees and slow transactions. I understand why people are fed up and looking for a “better way,” that will truly connect everyone on the planet with access to the internet. With libra, Facebook is offering a new approach to anyone who can open a virtual wallet — it’s easy and enticing. And whatever country or corporation can connect billions of people globally will surely be the winner in this century’s trade wars.
Currently, the association of corporations involved in developing libra is 28-member companies strong, and the number is expected to grow to more than 100 by its inception. Heavyweights like Visa, Uber, Vodaphone have already signed on. When you think about just how much economic power libra will have behind it, it’s easy to see how its influence could disrupt the American economy.
Just think about the size of Facebook’s current network alone — 2.13 billion users — and then add to that its alignment with many of the world’s largest companies. The currency will be immediately and systemically important from the day it launches.
And although every world leader should be taking notice and action, in many ways, China (home of some of the world’s biggest digital payment systems, including WeChat Pay and Alipay) has the most to lose by not being at the forefront of this sea change. When the world switches to libra, it could easily cause a revolution in a country where Facebook, Google, and many forms of cryptocurrency are banned.
My message to politicians in all countries is clear: we all need to get on the same page in terms of how to coordinate and regulate cryptocurrencies, and we need to start now. Yes, the rules we write today will certainly evolve in tandem with the technology, but the unknowns ahead are not sufficient reason to avoid setting rules in the first place.
One good place to start would be with a constitutional bill of rights that would eliminate the risk that a single company or a group of companies could have a larger impact on central banks and global commerce than governments themselves.
Zuckerberg, we (mostly) love what you’ve built. Your properties have helped make the world a smaller place. But no one wants to see libra evolve into a shadow bank and a destabilizing controller of global commerce. I doubt that even the staunchest capitalists among us want a world in which Facebook is suddenly more important to the economy than the U.S government.