
Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal - ptd
https://www.bloomberg.com/news/articles/2019-07-10/fed-s-powell-has-serious-concerns-with-facebook-libra-proposal
======
TheRealPomax
My main concern about libra is that, by being strongly tied to real
currencies, libra issuers (not just facebook, all of them) have effectively
assumed the role of unsanctioned mints, with the ability to damage the
stability of each currency because libra is not tied to the international
exchange system: if you pay facebook, or anyone else, $10 and they convert
that into libra, now they have $10 that they will absolutely put back into
circulation to make additional money on, _and_ $10 worth of libra have been
created, which can be converted back into real dollars with the original $10
already gone.

~~~
traek
This is how every bank works.

~~~
johnrgrace
Except banking is highly regulated and the money not held in reserves is
invested with oversight on how much risk is taken (that oversight fails
sometimes but generally works). If a tech company can jump in and function as
a bank without oversight that is going to hurt banks.

History has shown us that unregulated banks, and regulated banks that push the
limits or evade regulations fail and cause damage to the entire economic
system.

~~~
gridlockd
First of all, Facebook isn't doing fractional reserve.

Secondly, banking regulation does nothing to mitigate the risk of fractional
reserve banking. Your average bank holds maybe 10% of deposits, the rest is
loans way into the future. No such bank can survive a bank run.

What _does_ mitigate the risk (for the average bank customers) is the
government insurance for bank deposits. A government can always print the
money necessary to bail out a failed bank. What such a bailout could do to a
currency is another story. Let's just say we got lucky.

In any event, the government _wants_ the banks to loan out all this money,
because that's economic stimulus. You can't have both tight regulations and
easy money.

~~~
viraptor
> Facebook isn't doing fractional reserve

I think a better description would be: Facebook says that right now they're
not planning to do fractional reserve. There's nothing holding them to this
promise. There's also no control that their partners in Libra will keep it.

It may well be the same situation as tether (or worse).

~~~
gridlockd
> There's nothing holding them to this promise.

There _may_ be, the exact terms aren't clear yet. Of course the terms might
just say "you have no rights whatsoever". The market will price those terms
in.

> It may well be the same situation as tether (or worse).

I don't think that's a good argument against Libra. Tether is still trading
around 1.00$, despite its reserves being _at best_ 74%. The market is pricing
the risk of ending up as bagholder as next to nothing.

Nobody is arguing that holding large amounts of Libra as a "store of value" is
a wise thing to do. Neither is storing large amounts of cash under your bed.

------
kregasaurusrex
The idea of pegging a currency's value to a basket of existing fiat currencies
has already been done by the IMF as Special Drawing Rights[0], where Libra's
goal is to extend a similar functionality into a living digital payment
system. Transfers of XDR are restricted by its issuing bodies only to nations
due to the large amount of risk bourn by having the ability to print an
unlimited amount of currency, and a continued guarantee for the currency to
remain solvent against its allocation baskets. Governments are right to see
this as a competitor to central banking as the network operates outside their
jurisdiction (including the IMF'S), avoiding payment monitoring networks like
SWIFT, and Libra doesn't seem to have a well-defined plan in the case of a
major liquidation event.

[0]
[https://en.wikipedia.org/wiki/Special_drawing_rights](https://en.wikipedia.org/wiki/Special_drawing_rights)

------
jasonhansel
My concern about Libra is that it suggests that Facebook is trying to control
things that have normally been the purview of the government. This is
concerning in the long run because Facebook is not run democratically. Any
institution performing government-like functions should be at least as
accountable as the government itself.

~~~
dumbass123
Your concern makes no sense whatsoever. First of all, history has shown that
"democratically" controlled currencies are a pretty terrible idea. That's why
the ECB, Fed, Bank of Canada, etc. etc. all make a point of being independent
of the rest of the government.

Second of all, it IS accountable to far more than just "rich people". There's
many times of democracies... and one way of breaking it down is democracy by
vote vs. democracy by exit. The US Government is a democracy by vote.
Starbucks is a democracy by exit. You have no control over how Starbucks makes
their coffee, but if you don't like it...then you can just go across the
street to another coffee shop. That way, Starbucks is extremely accountable to
their customers...because if they stop meeting customer demand then they'll go
out of business. I'd personally argue Starbucks operates much more efficiently
than the US Government (but that's a separate issue). Libra works the same
way. Right now, you're forced to use the US Dollar to pay. With Libra, you're
under no such compulsion. If you don't like the way Libra is being
operated...use some other currency to do your transactions. This will cause
less money to be in Libra reserves... resulting in less money to Libra
shareholders... and on and on. Therefore, Libra IS democratically accountable.

~~~
jasonhansel
A "democracy by exit" is not a kind of democracy. There are plenty of horribly
undemocratic countries where people don't need exit visas to leave.

Likewise, when corporations become too powerful and monopolistic, they are
technically "democracies by exit." But, much like some countries, they are not
democratic in the important sense.

When such companies exercise too much power, most ordinary people do not have
any control over the forces that most significantly impact their lives. And it
is this sort of distributed control which makes a system democratic or
undemocratic.

~~~
dumbass123
> There are plenty of horribly undemocratic countries where people don't need
> exit visas to leave

I have no idea what you're trying to say with this. Just because you don't
need an exit visa to leave doesn't mean other countries will just take you
in.... That's why you have refugee crises.

You're going off on a completely different tangent. When corporations become
too powerful and monopolistic then it's the government's job to break them up
and preserve competition.

We're specifically talking about Libra right now. Libra will have competition
with the US Dollar. Unless you're suggesting Libra will become so powerful as
to replace the US Dollar...then your point is completely invalid.
Additionally, if Libra is extremely successful, you can almost certainly bet
that other companies will come out with their own digital currency.

------
WheelsAtLarge
Interesting that Powell does not address the power that FB gets by having its
own currency. Having billions of users gives it the power to create its own
economy and by extension its own government. If you give it enough time FB
will be able to set its own monetary policy and rules. It won't happen today
or tomorrow but give it time and it will.

~~~
conanbatt
Its an independent currency: if it changes rules in a way users dont accept it
would stop being used.

Lets not confound the capacity to build a token with the capacity to levy
taxes. The latter is the scary one. The former is just playing with casino
chips and airline miles.

~~~
WheelsAtLarge
One of the ways that fiat currencies are accepted by the public is that you
can use them to pay taxes so even if no one wants to accept them you can be
sure that the issuing government will accept it as payment for taxes and
government services. So people are assured that at worst there is a place
where it can be used.

Once FB creates services that people want and then FB decides that they will
only accept its currency as payment then people will have the confidence to
accept it and use it. There is no doubt in my mind that FB will create
services since all companies eventually create them as part of their business.

There is nothing new about the general idea. It's happened in the past and it
will happen in the future.

~~~
conanbatt
This presents no conflict with a healthy and free society.

~~~
phatfish
Sure, if it is correctly regulated to have no more leverage on our lives than
a fancy marketing strategy.

If not then I see a lot of problems with handing even more power from
democratically elected governments to the corporate black box.

~~~
conanbatt
And if it is incorrectly regulated?

------
rstuart4133
For some reason this reminds me of Uber.

Over the centuries we have built up a very elaborate currency system. It
complex with elaborate protections yet is simple for your average person to
use.

It's also very expensive for what it does. Today money is represented by a few
bytes on a disk. Transferring it takes a few smallish IP packets and minimal
CPU cycles. Ergo, the cost of doing these things should be fractions of a
cent. Yet if I buy something using paywave, it costs someone about 1% of the
transaction. If I by something over the internet it's more than 1%. If I
transfer $1K overseas it costs $20 or something. With costs like that its ripe
for disruption.

This system is firmly cemented into our society with lots of law, and this
inflow of those huge quantities of cash has created a legion of formidable
vested interests who will defend it to the death (most because if it
disappears they will too).

This is what Uber was up against in the taxi industry, albeit this is at much
larger scale. Uber got around it by just ignoring the law, and in the process
bankrupting the species those laws protected - the taxi licence holders. It
caused enormous pain for them, and they were most innocent bystanders.

It's going to take a special kind of hubris to take that on, and a enormously
talented person to pull it off. Zuckerberg may be that person. I can't say I
like his chances, but given he's seen WeChat's success in China I don't doubt
his motivation.

------
devoply
The US already has full control of the global currency, what could this
possibly buy them? They want to be able to embargo nations' currency and
destroy them doing that economically, this would get in the way of that...
They would need FB's blessing to properly deprive citizens of other countries
whom they are targeting of financial resources. So obviously it's a non-
starter.

------
buboard
Well he should have. Or maybe it's just for show. Libra can be a great tool to
control the rising markets in africa. Perhaps this will end with a compromise
that gives Fed control over the network.

~~~
bilbo0s
I don't know man?

There are things happening in Africa right now that make me think FB won't be
a major player in Africa in the future. The Africans have been smitten by the
Chinese protectionist model. That new free trade agreement they have actually
specifically excludes your company from benefiting if you're using goods or
services from outside the zone where options exist inside the zone. Don't
misunderstand me, I get it, they need to get their economies going. Get jobs
for their people. Etc. Just pointing out that this stipulation has some
obvious consequences for companies outside the zone.

And it's not just Africa, I'm betting the future will see a balkanization of
the internet. I could be wrong though? But I doubt it. A lot of corruption in
Africa and everywhere else, and corrupt people are exceedingly greedy. I think
we can count on them taking the whole pie wherever possible. As well as
aggressively working to expand the number of places it's possible to take the
whole pie.

~~~
hardlianotion
Facebook is a major player in Africa right now.

~~~
bilbo0s
Sure, now.

All I'm saying is that after reading through some of those regs, clearly it'd
be prudent to bet on African properties for those playing the long game.

------
rufusroflpunch
Of course he does. His job, his entire worldview, is based on technocratic
control of the economy. Breaking the government monopoly on currency threatens
everything about him.

~~~
JumpCrisscross
> _Breaking the government monopoly on currency threatens everything about
> him_

This is naive. Breaking governments’ holds on currency would be supremely
lucrative for bankers. See the American free banking era.

~~~
jpadkins
This is also naive. The federal reserve is a joint org of government and
banks. There is no separation of government and banking power when it comes to
currency in the US. In 1913, they agreed to control it together (run by the
banks, oversight by federal government).

------
nkebbas
Of course he's concerned. This type of thing could potentially displace USD as
global money. Pretty unlikely but the idea of it is reasonably terrifying to
the federal reserve.

------
conanbatt
After 10 years of the crypto-crazies of bitcoin denouncing the power of
central banks, a private company announces to do a version of a crypto-
currency and is under fire from a central bank.

Clearly they got something right.

~~~
DiseasedBadger
Nothing about Libra denounces the power of central banks.

Facebook just becomes an unregulated central bank.

~~~
conanbatt
They can't be a central bank because they are not a government.

~~~
vageli
> They can't be a central bank because they are not a government.

Isn't the federal reserve in the United States a private corporation that is
not part of the government?

~~~
conanbatt
No, they are not a private entity in that sense. They president is appointed
by the president. They are a (theoretically) independent organism.

------
seibelj
Posted this in an older Libra hatefest but I'll post it again:

Cryptocurrency and blockchain technology have opened up permissionless
innovation in an industry that has been so choked by regulation that
previously only the largest, most well-connected players could get in the
door: finance. You can, right this second, create a smart contract that allows
extremely sophisticated financial instruments and attract real users. The
initial shoots of innovation are already happening, such as MakerDao's
Collatorized Debt Positions (CDPs)[0] and Compound Finance for money market
crypto instruments.[1]

Regulators and governments can stick their fingers in their ears, outlaw the
technology, and drive everything offshore or underground. The point is that
these technologies are permissionless and unstoppable. As long as the internet
exists, you can't eliminate such technology and behavior.

Rather than knee-jerk outlaw progress in the industry by projects such as
Libra, governments need to let the industry mature and eventually pass laws
that protect consumers without stifling innovation. HN users especially need
to embrace their so-called "hacker" roots and stop lobbying for the state to
crush such innovative technology in its infancy.

Seriously - the outrage to blockchain and crypto on HN is entirely absurd.
This is cool, interesting technology and entrepreneurs should be analyzing it
for its disruptive potential rather than whining that there aren't enough
licenses and bureaucrats involved.

[0] [https://makerdao.com/en/](https://makerdao.com/en/)

[1] [https://compound.finance/](https://compound.finance/)

~~~
ethbro
The problems with cryptocurrencies are precisely their lack of laws.

Laws link the real world (a thing or action) to an intangible concept (a
transaction or a contract).

Without a guarantee of that link (ultimately, via force), you're left with
joke monopoly money.

And if you leverage the existing system to accomplish that link (e.g. via
writing legally valid smart contracts), then you're again beholden to
governments.

People don't use government-backed currency because they have to: they use it
because it's useful and reliable.

~~~
seibelj
Before cars there were horses, before computers there was graph paper. The
benefits of crypto are so clear that outlawing it makes no sense. I can’t
explain this to you because you choose not to understand it so it’s not worth
arguing.

~~~
ethbro
None of your words applied to what I said.

You don't have to outlaw cryptocurrency to make it useless: all you have to do
is deny its use of existing legal guarantees.

