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Opinion | Can We Trust Facebook to Run a Bank?
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Opinion | Can We Trust Facebook to Run a Bank? [nytimes.com]
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Opinion [nytimes.com]Can We Trust Facebook to Run a Bank?
A company that once promised to “move fast and break things” wants to transform the global economy.
Mr. Bokat-Lindell is a writer in The New York Times Opinion section.
- Oct. 24, 2019, 5:45 p.m. ET
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This article is part of the Debatable newsletter. You can sign up here [nytimes.com] to receive it Tuesdays and Thursdays.
Facebook could hardly help drawing the world’s jaundiced eye when it announced in June that it intends to mint its own currency next year. Sending and receiving payments, the social network promised, will soon be as easy as a touch of a WhatsApp or Facebook Messenger button. Transactions will be instant, and fees more or less nonexistent. The 1.7 billion people across the world who lack access to a traditional bank will be welcomed into the fold of the global financial system. Crucially, they will be “empowered. [libra.org]”
Like other cryptocurrencies, Libra will use blockchain, a decentralized ledger technology, to offer a digital alternative to government-issued money. But unlike Bitcoin, Libra will be pegged to a basket of existing currencies, including the dollar, and will be overseen by a consortium comprising Facebook and an ever-changing list of other corporations. (Mastercard, Stripe, Visa, PayPal and eBay all pulled out [nytimes.com] of the project this month.)
“How Libra, Facebook’s Cryptocurrency, Would Work for You” [nytimes.com]
On Wednesday, Mark Zuckerberg, Facebook’s founder and chief executive, testified about Libra before the House Financial Services Committee, where the shadow of well-worn skepticism fell swiftly over the precipice of his hairline.
“You’ve proven that we cannot trust you with our emails, with our phone numbers,” said Representative Ayanna Pressley of Massachusetts. “So why should we trust you with our hard-earned dollars?”
The debate: Does Facebook’s foray into the financial industry augur more pain for its users, or can the company be trusted to turn over a new leaf?
WHAT PEOPLE ARE SAYING Maybe, possibly, you can trust it
Libra is the social network’s last, best hope to regain public trust, writes [nytimes.com] Kevin Werbach in The Times. After steam-rolling privacy, civic discourse and even the democratic process on the road to global domination, the company is now turning toward digital currency as a much-needed means of rehabilitating its reputation. He writes:
Facebook built an empire balancing the appeal of limitless social connectedness with the extractive potential of data mining. That arrangement tipped dramatically away from users. The only way Facebook can restore equilibrium is through a completely new arrangement.
The benefit of a digital currency, Mr. Werbach says, is that it can be decentralized and encrypted, and so less prone to privacy violations than Facebook’s core advertising business that depends on harvesting user data. “If Facebook can establish Libra as a trusted way for users to make their transactions, it will go a long way to rebuilding trust in Facebook itself,” he writes.
Could it work? Maybe, argues [vox.com] the tech journalist and Times contributor Kara Swisher in Recode. When it comes to Libra, she says, there are some early signs that Facebook could be cleaning up its act:
Among other things: Facebook has promised not to link the financial information generated to its social data (i.e. this is not an explicit data play, even if it is implicitly); it has created Libra as an independent organization, run by a mostly obvious grab bag of partners (what Uber is doing in there, who knows); Calibra, Facebook’s unit in Libra, is run by an experienced and P.R.-savvy exec, David Marcus; it is linking Libra with currencies like the dollar and positioning it as a “stable medium of exchange,” rather than a speculative investment play like bitcoin.
All of these steps suggest a potentially more “adult” Facebook. “I wouldn’t trust Facebook to hold my house keys,” she writes, “and yet I think its Libra cryptocurrency effort is exactly the right move for it to make.”
Bloomberg Opinion’s editorial board agrees [bloomberg.com] that we should welcome Facebook’s newest endeavor, albeit with an abundance of caution, since the good it could do is likely to outweigh the bad:
In the optimistic case, Libra will simply add to growing competition in the money-moving business. It should offer faster, cheaper and less irritating transactions. It might make life easier for small businesses, advertisers and anyone wanting to buy a product online. It could be of particular value to the poor, who could accept payments, pay bills, or make remittances more cheaply and without need of a bank account. … Unduly clobbering Facebook — however satisfying — could stifle that revolution before it really begins.
You definitely should not trust it
A Facebook currency is a bold, bad idea, writes [nytimes.com] Matthew Stoller, author of “Goliath: The 100-Year War Between Monopoly Power and Democracy.” He touches on a number of concerns that Libra poses:
National security
Facebook already has more power than many countries, a threat Libra could exacerbate. For example, Mr. Stoller writes, consider how Libra could undermine diplomatic sovereignty:
Sanctions enforcement flows through the banking system — if you can’t bank in dollars, you can’t use dollars. With the success of a private parallel currency, government sanctions could lose their bite. Should Facebook and a supermajority of venture capitalists and tech executives really be deciding whether North Korean sanctions can succeed? Of course not.
Governments also charge banks with the responsibility of monitoring illegal and dangerous activity, something that Facebook has shown neither the willingness nor ability to do. Linette Lopez writes [businessinsider.com] for Business Insider:
The platform will immediately have to grapple with all the darkest corners of the financial system, like terrorist financing and money laundering. These are difficult to control for even developed sovereign nations.
Privacy
As Natasha Lomas has reported [techcrunch.com] for TechCrunch, Facebook has been characteristically fuzzy about what kind of privacy and data protections Libra will have, giving watchdogs around the world reason to worry. Facebook’s privacy track record is already poor, but the problem would take on additional dimensions with its currency, writes Mr. Stoller:
Imagine Facebook’s subsidiary Calibra knowing your account balance and your spending, and offering to sell a retailer an algorithm that will maximize the price for what you can afford to pay for a product. Imagine this cartel having this kind of financial visibility into not only many consumers, but into businesses across the economy. Such conflicts of interest are why payments and banking are separated from the rest of the economy in the United States.
Financial risk
Libra promises to maintain a stable value, unlike Bitcoin, because it will be pegged to other existing currencies. But what happens to those other currencies if Libra’s value tanks? Katharina Pistor, a professor of comparative law at Columbia Law School, writes [marketwatch.com] that Libra could easily repeat the catastrophic mistakes of the “too big to fail” banks that the public had to be bail out during the Great Recession:
It is easy to imagine a scenario in which rescuing Libra could require more liquidity than any one state could provide. Recall Ireland after the 2008 financial crisis. When the government announced that it would assume the private banking sector’s liabilities, the country plunged into a sovereign debt crisis. Next to a behemoth like Facebook, many nation-states could end up looking a lot like Ireland.
The risk to the global economy, Ms. Pistor argues, is simply too serious to allow Libra to roll out next year.
Bad faith
Libra differs from other cryptocurrencies in another crucial way: It’s not truly decentralized. As Eric Posner, a professor at the University of Chicago Law School, writes [theatlantic.com] in The Atlantic, Facebook will not technically operate Libra. The consortium of companies of which Facebook is a part, the Libra Association, will. He adds:
How the Libra Association will use its power is anyone’s guess. The narrow money-transfer function that Facebook lays out in the white paper is just one possibility — the narrowest and least threatening one. Facebook might sincerely believe that the association will manage the Libra as a kind of glorified Western Union. But Facebook has broken its promises before [npr.org].
For Ms. Lopez, the question of whether Facebook can theoretically make good on specific promises about Libra is immaterial, because the company has shown time and time again that its word in the aggregate is worthless. She writes:
There are the teens who are suing the company for profiting from data used to sell them into sex slavery. There’s the horrible way Facebook and its contractors treat the people who are paid to patrol violence and misconduct on the platform. And, of course, even though Facebook knew Russian agents had used its platform to spread misinformation during the 2016 election, it did not admit to the depth and breadth of the problem until 2017. I wouldn’t let Facebook water my plants, let alone monitor my banking transactions.
WHAT’S NEXT
During his testimony on Wednesday, Mr. Zuckerberg promised that Facebook will not move forward with Libra until it gets approval from United States regulators.
Yet both Congress and the White House have already shown significant resistance to the idea, which could grow stronger depending on how Facebook handles its role in the next presidential election. As Casey Newton writes [getrevue.co] for The Verge, “It’s hard to say at this juncture whether Libra remains a viable project.”
Do you have a point of view we missed? Email us at debatable@nytimes.com [mailto]. Please note your name, age and location in your response, which may be included in the next newsletter.
MORE ON LIBRA’S TUMULTUOUS START
Taylor Telford explains why governments around the world are afraid of Libra [washingtonpost.com]. [The Washington Post]
Ben Thompson digs into the differences [stratechery.com] between Libra and other cryptocurrencies. [Stratchery]
Russell Brandom explains why so many of Facebook’s partners [theverge.com] are bailing on the project. [The Verge]
“Facebook’s Zuckerberg, Accused of Lying, Withstands a Washington ‘Beating’ [nytimes.com]”: Cecilia Kang, Mike Isaac and Nathaniel Popper report on Mr. Zuckerberg’s testimony. [The New York Times]
WHAT YOU’RE SAYING
Here’s what readers had to say about the last debate: Making drug companies pay for the opioid epidemic. [nytimes.com]
Taryn from Houston wrote in: “I’m a Black queer woman raised in Colorado. … When there was a crack epidemic that affected the Black community, the war on drugs looked at punishing the addicted. Now that the addicted isn’t primarily us, it’s an epidemic. … As Black people in America, it’s always tiring that this country gets it ‘wrong' when it comes to us but gets it ‘right’ when it’s ‘white.’”
Richard from South Carolina commented: “Drug companies were guilty of careless marketing practice and overselling opioid drugs to doctors who had little training or time to monitor outcomes. But Pharma did not start and is not sustaining our so-called ‘opioid crisis.’”
Ross from Chicago commented: “We can recognize the breadth and scope of the problem when looking for solutions, but not as a means to obscure the underlying crime. The Sacklers and their associates are drug dealers and murderers and need to go to jail for a long time.”
Spencer Bokat-Lindell is a writer for the Opinion section. @bokatlindell [twitter.com]
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