The excitement about Libra is premature. Maybe Zuck’s got more to
share, but right now there’s very little information, and Libra has a
lot to prove. Libra’s main stated mission is to service the world’s poor
and unbanked. This seems unlikely to be the whole story…
Facebook’s source for the 1.7 billion figure is the World Bank’s Global Findex Database 2017. Findex also believes that 1 billion of these have mobile phones and 500 million have internet access.
However, Findex also says that over half of the 1.7 billion come from
just seven countries: Bangladesh, China, India, Indonesia, Mexico,
Nigeria and Pakistan.
More than half of these are in places where:
- Cryptocurrencies are banned
- Facebook can’t freely operate
- The country is under heavy FATF restrictions (due to money-laundering and anti-crime concerns)
- Or, it faces other limitations.
Targeting these unbanked just doesn’t seem plausible. How are they
going to get in and get people to use it? Who and how many people are
realistically going to join? How fast does Libra realistically expect
adoption to be and is it worth it?
These jurisdictional limitations also help to explain why Libra
doesn’t have any local partners anywhere with a relevant market presence
or customer base. Out of the 28 founder members of the Libra
Association, only one, Mercado, is based in a developing part of the
world (South America). None are based in Africa or Asia where most of
the world’s unbanked actually are.
Libra expects to have 100 members by 2020. Perhaps some of them will
be in places, with networks, and local ground presence and knowledge, to
actually roll it out. Then again, the Breakthrough Initiative,
a founding member with Zuckerberg on the board, says its main mission
is searching for alien life, so Libra already has outer space covered I
guess…
About the details
Stable currency plans also need further explanation.
The countries left where it can access the unbanked sometimes have
significant currency swings. The proposal is to make Libra very stable
by backing it with a basket of yet undecided fiat currencies hoped to
have “low volatility.”
OK.
Well, the definition of volatility and its adjunct risk is tied to
the asset/liability profile of the user. In any economy it’s a better
idea that your earnings and debts should be in same currency. There are
numerous cases of developing economies taking on debt in or relying on
foreign currencies and it ending in disaster.
Never mind developing economies, just look at southern Europe and the
northern dominated euro. Libra risks inflicting this sort of mess on
the people it wants to help and who need this problem even less than
comparably richer Europeans.
It doesn’t work for countries to rely on foreign currencies. For
individuals or small businesses with wages and expenses in local
fiat…this looks suicidal.
Libra may have good intentions. It needs to answer why this isn’t
just a rich country solution being pushed on poor country problems. It’s
like when well-meaning philanthropists donate solar panels without
engineers to maintain them, or livestock which are ill-suited to the
local climate, or irrigation pumps where there is no power grid.
The stakes are obviously much higher if a new currency is implemented and it goes wrong.
What about Asia?
Facebook also have some questions to answer about China.
China’s Belt and Road Initiative (BRI) is sprawling. China has signed
cooperation documents with 126 countries and 29 international
organizations, many in the places where Facebook might hope to service.
Many large projects are already underway with Chinese cooperation.
Ports, railways, highways, power stations, aviation, telecommunications
and finance. It seems very unlikely that China wouldn’t also want to
target the unbanked in these countries and extend its technological and
financial influence.
Is Facebook prepared to go up against China? That’s after it’s done
looking domestically at anti-trust monopoly cases, objections from
regulators, the Federal Reserve and Congress, and internationally at places like the Bank of England or the French Finance Ministry.
On the other hand, China has long been a big center for bitcoin
miners, cryptocurrency trade and was a major centre of the ICO craze in
2017.
It seems highly unlikely that similar-profile Chinese companies to
Facebook have not already considered this idea and run some numbers.
They are reportedly not following Facebook any time soon.
Has someone like Jack Ma figured it’s perfectly fine selling things
to unbanked Chinese in the existing way? Is a new system and having to
educate people on a new cryptocurrency not worth the hassle? For now,
big Chinese technology companies seem happy to stick with conventional
payment networks, don’t want a blockchain solution, and don’t want to
try a battle with the Chinese treasury.
And that brings things to the final thought.
Just Poke Me
Facebook got big by giving away free social media and selling targeted advertising mostly in G7 countries.
This works when the targets have money to buy things. What is
targeting the subset of 1.7 billion unbanked actually worth? What do
they buy that is worth advertising? How is Libra actually intending to
make any money?
What is the point of Libra? Skeptics and general grumpies might say it’s one of these:
- Publicity stunt. Maybe Facebook wants to divert
attention away from accusations of grubby deeds like privacy violations,
political manipulation, and censorship, and toward a lofty and socially
pleasing enterprise? Maybe Facebook wants to recover its image from 10
years ago when it was still cool, new, and energetic? - Search for new revenue. Maybe Facebook is trying to make up for its decreasing, aging user base?
- Financial data. Maybe this is a longer-term Trojan Horse or a test-bed for Facebook’s future?
- Crush competition before it gets started. Maybe
Facebook is getting spooked by the growing numbers of smaller social
media and messaging platforms which are crypto ready, like Minds, Kik or
Telegram, which threaten to keep sapping Facebook’s and WhatApp’s user
bases and threaten their standing? - ‘Are we alone?’ Maybe Breakthrough Initiatives has
finally fulfilled its goal of finding alien life, specifically Zuck’s
own extra-terrestrial race? They’re all unbanked, with no accounts at
JPMorgan, and a prime new untapped demographic perfect for Libra. - Zuck the Benevolent. Believers and optimists may
well say that maybe Zuck’s interested in technological progress,
believes he can do a good job, and likes new challenges etc. Sure, why
not?
This piece truly isn’t about making any judgement on any of the
guesses above or any other plans for Libra. Not much has really been
announced and it’s too early to assess.
However, a dispassionate, fact-based and common-sense analysis shows
Libra is anything to do with servicing the 1.7 billion poor and unbanked
in developing countries.
Maybe the unbanked are a lot richer than we realize or will be soon.
Maybe Libra has made more progress than we realize in getting the right
governmental permission to access crypto-hostile and generally difficult
countries. At the moment this just looks either poorly planned or there
are other, smarter things to come. It just isn’t credible that this is
about servicing the unbanked.
Zuck, if you want help, I have some ideas. You can find me on Facebook.
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