Hacker News new | past | comments | ask | show | jobs | submit login
Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal (bloomberg.com)
130 points by ptd 9 days ago | hide | past | web | favorite | 155 comments





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.

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price of Libra, right? Am I understanding things correctly?

With the banks we're used to there's a potential tragedy of the commons in that their separate decisions all affect the shared money supply, which is indistinguishable, so one reason to have a central bank is to get some overall control of those distributed decisions. A distinct competing currency already under a single decision maker doesn't so obviously need that extra governance. I don't know, maybe it does, but I'd like to see the reason spelled out.

(Hayek raised this point in his Denationalisation of Money.)


> but the new money is not denominated in dollars, it's in Libra

That would be a problem from the governments perspective. Any theory that starts by assuming normal economic forces forces where money is concerned is risky.

The supply of money is actively managed by governments in response to various things. That ability to exchange serious amounts of money is not usually tampered with but is generally required to flow through systems which a national government controls (usually the US Government) and there are gate-keeping fees to get involved. The ability to make loans or do creative accounting at scale is also locked down with regulations and requirements.

It is an interesting situation because the distortions don't directly generally stop anyone doing anything directly; but the way winners are chosen doesn't function exactly like a theoretical free market. Facebook is unlikely to be selected as a winner if they just jump in feet first; and particularly if they want to expose the monetary system to supply-demand forces that aren't under government control.


I think the plan for Libra is always to have its value tied to something stable (USD for sake of argument, but more complex in practice). Each libra would be backed by 1 dollar or whatever.

(I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)


OK, but we're talking about cases where something goes wrong. What are some somethings?

- Libra screws up and its value is unstable. Pissed-off customers switch to other currencies, at a loss.

- Libra turns out to be a great stable currency while the Fed screws up so badly that everyone scrambles to get out of dollars. It's a giant disaster, but not one I'd describe as "Libra destabilizing the financial system" -- I'd call it them offering a lifeboat -- a well-run firm outcompeting a poor one. (This seems unlikely, and I'd hate to see Facebook become this powerful because I can't stand Facebook. It's just, in this scenario they'd have done a useful thing.)

- Libra is so successful they gain a new effective monopoly, and then they fail or exploit their position.

Is the worry something else? I don't understand money very well, for all that I've read multiple books, took ec in college, etc. There's so much BS around it.


> the main effect will be on the market price of Libra, right?

National central banks in the modern era have two functions: manage the money supply and make sure that the economy is running well. It's true that Libra would be the only direct impact, but then you have people who have debts in dollars and revenues in Libra, and if they can't pay back their dollar debts then their lenders are now short of dollars and can't pay back their obligations, and now we have a financial crisis.

Examples of this include 1997 in Asia: https://en.wikipedia.org/wiki/1997_Asian_financial_crisis


Thanks. I'm skeptical that this management of the economy on net makes it go smoother -- I can't understand what they're doing even as well as they do without far more study, but I can e.g. notice that respected economists were seriously starting to think the "great moderation" had been achieved by the years just before 2008. (Not just hindsight bias, since I was reading them at the time.)

But yeah, that point of view is a lot more mainstream and could well be more right.


Love or hate what the Fed is currently doing, it's a known quantity that has managed to avoid a serious run on the dollar since the '80s. Libra at this point is a proposal that has yet to be anywhere remotely close to battle-tested. Better the devil you know than the devil you don't.

Every bank and credit card is also an unsanctioned mint. It works fine. The actual minting of money has not been a major factor in managing the money supply in a long time. It's all done by setting interest rates.

> The actual minting of money has not been a major factor in managing the money supply in a long time.

Very much not true.

Quantitative easing, the process of minting money to inject liquidity into the economy, was a core tenet of the Obama administration’s* response to the Great Recession. Literally trillions of dollars created to purchase bonds and mortgage backed securities to prop up the economy.

Edit: It was during the Obama administration but implemented by the Fed, which is independent of the White House administration (thank god.)


> "Edit: It was during the Obama administration but implemented by the Fed, which is independent of the White House administration (thank god.)"

I was half-listening to Jerome Powell (Fed Chairman) testify before congress today and one congresswoman (CW) asked him (JP) something like:

CW: Are there any tools you need that we can give you?

JP: No, we have all the tools we need at the moment.

CW: Well what about directly purchasing municipal bonds? I learned you aren't allowed to do that.

JP: That type of activity is outside the scope of our mandate.

CW: Well there are many cities going bankrupt that need someone to buy the bonds so if we give you the power to do that will it help if you can buy them?

JP: The best thing you can do to help is have a sane fiscal policy and reduce the deficits.


How did she respond to that last statement? Do you have the transcript?

That was all paraphrased from memory, sorry. It is somewhere in this: https://www.youtube.com/watch?v=HoWM7KpkAmY

I think it was probably in the last half of it.

Edit: Found it. Starts at 1:33:45


> Very much not true.

> was a core tenet of the Obama administration’s response

Quantitative easing is a monetary policy, not fiscal policy. A central bank dictates monetary policy. An administration dictates fiscal policy.

Would recommend you read this: https://en.wikipedia.org/wiki/Quantitative_easing


Yes you’re right, I should have said the Fed.

>> Very much not true

?? The parent comment is correct that about the 'actual minting of money' not being a huge factor, in the sense of printing dollars and coins. Quantitative easing increases the money supply, but not via physically printing money.


That's because interest rates were already at zero. Look over to what BOJ did - they straight up bought equity ETFs as a part of their qe, even more hardcore. Still, not much inflation!

QE controlled inflation by reducing the fractional reserve rate, thereby counteracting the minting of money with the reduction of credit-money.

Insofar as this rhetorical framework is concerned, they're actually sanctioned, not unsanctioned.

Banks and credit issuing institutions are heavily regulated and have a variety of criteria that must be met to legally operate in that capacity.


> Banks and credit issuing institutions are heavily regulated and have a variety of criteria that must be met to legally operate in that capacity.

Except the banks and other regulated financial institutions involved in Libra aren’t the entities that will be issuing Libra coin. A separate (I believe non-profit) entity, Libra, is. The financial institutions have “donated” $5 million and will have the ability to appoint a seat on Libra’s board. Do you know which regulator will oversee that entity? Do you know what regulations will apply to that entity? I certainly don’t.


What are you objecting to exactly?

As near as I can tell, we're in agreement about the situation.


Setting interest rates AND THEN? come on you have to be able to complete that sentence, and when you do it will negate the prior sentence.

A short article about money creation in the modern economy by the Bank of England that will probably answer your questions https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

And then lend at that rate.

The original 10$ aren't "gone", they're held in reserve in the form of bank deposits and government bonds. If you hold Libra, you supposedly have a claim against those.

This is unlike a fractional-reserve bank, which can turn those most of those $10 into loans of any sort and still pretend it's cash that's available at any time.


You know a bond is a loan?

Why is a Libra loan to the government different to a fractional reserve loan of any sort?


Short term US government bonds are extremely liquid and low risk; unlike other loans they are easy to convert into dollars. Presumably any other government bonds in the libra reserve (e.g. german bunds for euro?) would be selected to have the same property.

A government bond issued in the countries own currency has no risk of default and is highly liquid. An ordinary loan such as a mortgage has poor liquidity and a high risk of default in case of turmoil.

"A government bond issued in the countries own currency has no risk of default"

That is very far from correct.

And I still don't think the risk differential is enough to make them 2 different things.


> That is very far from correct.

Fair enough, that was poorly phrased. For practical purposes, buyers of such bonds operate under the assumption that the country won't default on its debt, because it can always service it nominally by creating the money. Of course that has a risk of depreciation, but so does holding the currency itself.

> And I still don't think the risk differential is enough to make them 2 different things.

You don't think a junk bond, a mortgage and a government bond are different things? I never said that a government bond is not a loan. Of course it is a loan, but in terms of risk and (more importantly) liquidity these are all very different.

What asset has lower risk than a short-term government bond? If you know, tell the banks in Europe that are currently paying negative interest on German bonds all the way up to 10 years.


"because it can always service it nominally by creating the money"

The Eurozone would offer a counter example.

I suppose if a nation issued enough inflation linked bonds it could also get itself into trouble that way. In general though you're right, inflation is the big risk.

"You don't think a junk bond, a mortgage and a government bond are different things? "

That's actually the example I was thinking of.

I think they're both bonds. To take it back to your original comment, I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in.

"What asset has lower risk than a short-term government bond?"

Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation.


> The Eurozone would offer a counter example.

The Eurozone is special case, because the Euro is not any countries "own" currency. I'm not an expert on the modalities, but as far as I'm aware Euro member states can print their own money, but that would of course cause conflict with other members. In any event, the ECB did avoid defaults of its member states.

> I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in.

Fair enough, we're having an argument over semantics. To be precise, what Facebook is doing is neither banking nor fractional reserve banking and I'm really just looking to draw a parallel here.

As far as actual banks and their reserve requirements are concerned, domestic bonds may well be "as good as cash", but it depends on the particular monetary policy. Whether that's good policy is debatable of course.

> Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation.

It's not a "good question", it's a rhetorical question. The answer is none, especially not stock. Bank deposits don't count, as they're limited. Imagine you're a bank yourself and you need minimize your risk exposure.


Not just one loan, like 10 loans.

This is how every bank works.

Yes, and banks are bound by incredibly tight laws, including laws around not being allowed to recirculate all the money you get as part of an exchange operation.

If all the Libra association members are willing to be bound by the same laws, then cool: but do you trust Vodafone, or Facebook, or Andreessen Horowitz, to not try to bend the rules so they can make more money?


Banks follow fractional reserve so they have to keep 10-20% of the deposits in cash. Libra and most stablecoins keep 100% reserves so it's even stricter. Libra claims that every coin is backed by fiat currency so investing the deposits is not how they plan to make money off of this.

Where did you see that claim? I see a different claim on their website:

""" How will the reserve be invested? Users of Libra do not receive a return from the reserve. The reserve will be invested in low-risk assets that will yield interest over time. The revenue from this interest will first go to support the operating expenses of the association — to fund investments in the growth and development of the ecosystem, grants to nonprofit and multilateral organizations, engineering research, etc. Once that is covered, part of the remaining returns will go to pay dividends to early investors in the Libra Investment Token for their initial contributions. Because the assets in the reserve are low risk and low yield, returns for early investors will only materialize if the network is successful and the reserve grows substantially in size. """

https://libra.org/en-US/about-currency-reserve/#the_reserve


Libra maintains "100% reserves." How is that money reserved? For a bank, it needs to be either in cash in the vault or on deposit with the Federal Reserve. Either way it's not getting loaned out again. Presumably Libra will be depositing it at (loaning out to) a bank, or putting it in short term bonds, money market, etc. Either way, they're loaning out all of the money, i.e. they have a 0% reserve.

What Facebook is proposing is merely to have assets equal to the deposited funds. For a bank, that is called teetering on the edge of insolvency. If a bank's assets ever dip below its liabilities, it is insolvent and either has to raise equity capital or be wound down by the government. This is why banks have capital requirements, so that they have a buffer against loans going bad.


> investing the deposits is not how they plan to make money off of this.

A huge float invested very conservatively still makes a lot of money. That is how most insurance companies actually profit.


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.


Every time someone says "banking is highly regulated", a banking executive does not go to prison for breaking a banking regulation in a way that has quietly cost consumers hundreds of thousands of dollars in aggregate.

I have no interest in protecting banks from businesses that act just like banks, and then get punished for doing those things, only because they are not legally considered banks. The last time banks pushed the limits, failed, and caused damage to the entire economic system, it was 2007-2009, and no one was ever held individually responsible for it. I haven't forgotten or forgiven.

So yes, please. Hurt banks. Protecting them just turns them into privileged asses. The "tight regulations" function mainly as their cartel membership rules.

Split tally sticks worked as privately-issued financial instruments for centuries, before banking lobbied to have them outlawed. Banking works better (for the banker) when there are no lawful alternatives to the bank's notes. A cryptographic equivalent to a split tally stick is very acceptable from a historic perspective.


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.


> 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).


> 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.


Libra isn't doing fractional reserve, it's full reserve. If you want to do fractional reserve banking, you have to be a bank.

Having said that, if you want to issue worthless tokens backed by nothing in exchange for real money, you can do that. That's your average initial coin offering. Laws still apply and you need to do due diligence, but it's possible.


Fractional reserve banking usually requires some non-zero percentage of deposits to be withheld.

The requirement is between zero percent and ten percent. [0]

Basically, for assets less than $124 million, the reserve requirement is 3%.

For more than $124 million, the requirement is 10%.

In other words, for every $100 on deposit at a bank, it can create "out of thin air" $90 and loan it out.

If someone then gets that $90 and puts it in a checking account at the bank, the bank can create and loan out $81, then $72, than $64, $57.6, $51 etc.

[0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm


In virtually all developed nations, the requirement is either zero or single-digit percent.

No there are strict tier 1 and tier 2 capital ratios that banks are required to uphold.

The fractional reserve requirements for cash and equivalent are in the single digits, as I said:

https://en.wikipedia.org/wiki/Reserve_requirement#Required_r...

Tier 1 capital is not cash reserves, it's risk-adjusted assets, which may or may not be made up of assets that are as liquid as cash.


zero?

What happens when someone wants to make a withdrawal?


Banks can borrow reserves from other banks or the lender or last resort. They usually do keep some reserves around for liquidity, but as little as possible because reserves don't make as much return just sitting in an exchange settlement account as they do if they lend them to other banks or buy Government bonds with them.

Fractional reserve in general isn't really a thing in modern banking. The US still does have a reserve requirement but pretty much the rest of the world relies on capital adequacy ratios (some capital is usually stored as reserves in exchange settlement accounts but it doesn't have to be).


The operative word there is requirement. Banks in 0% reserve countries don't have to keep cash around but do to serve as their actual functions as banks.

What countries are we talking about here? As far as I'm aware most developed nations have capital requirements for the banks. Whilst maybe not stating a minimum % reserve, in practice they do need to keep reserves for those capital requirements.

I don't know I was just answering your question about deposits.

But i thought each libra must be backed by real money? i.e. when they sell 10 libra the 10 dollars go to the libra fund, and cant really circulate (but can be invested)

Investment is circulation though. They are no longer holding the $10 you spent to buy 10 Libra but $10 worth of Apple stock say that definitely isn't always worth $10 and Apple or whoever sold that stock now has $10.

They could instead deposit it into their own bank, i.e. full reserve, and let the bank do the investing/recirculation itself which it is accredited to do.

According to the whitepaper at libra.org, they won't hold stocks. The reserve is a "basket of bank deposits and short-term government securities".

There's nothing binding about that proposed setup though. It wouldn't affect the function from the chain side so there's no real way to validate that that is what their doing outside of independent audits.

They could be holding it in gold instead, what difference would it make ? You can probably take a loan with 100% gold deposit in any bank legally.

But without Facebook (or any of the Libra association members that aren't already financial institutions) starting a bank, and then for obvious reasons being forced by law to split that off from their parent company as an independent entity, why would anyone expect banking laws to apply?

Banking and securities laws affect non-banks too. You can't just act like a bank or issue a security without following the regulations.

Facebook isn't actually acting like a bank, but if they claim that their tokens are backed by real assets when they aren't, that's just plain fraud.


It seems to me that Facebook has structured Libra coin to avoid banking & securities laws. By bringing in 20 of his closest Wall Street friends Zuckerberg is attempting to rely on prior SEC commentary that BitCoin is sufficiently decentralized to keep the tokens outside of securities regulation.

And even though Libra claims the tokens will be backed by a basket of global currencies they’re still acting like a bank. That basket of currency will fluctuate in value. Libra is basically offering a riskier and unregulated money market account.


It's not banking laws at all, it is the way they set up the association, I presume precisely to avoid fears like this.

I think there are not clear laws yet about this kind of backed stablecoins. However, their reserve will be 100% , which is way more than any bank.


I feel like this is E-gold 2.0 maybe 3.0 with BTC being 2.0

https://en.wikipedia.org/wiki/E-gold


E-gold was a scam IIRC, while libra's assets :

> the assets in the Libra Reserve will be held by a geographically distributed network of custodians with investment-grade credit rating to provide both security and decentralization of the assets.

And BTC is not backed by anything, it has intrinsic value now so it's wrong to call it a scam.


What is the intrinsic value of btc?

I can't eat it, use it to heat my house. It has value, most of it isn't intrinsic though.


Can you do any of those things with gold?

You can move it illegaly more easily than cash.

u can convert it to USD, so it must have some value or else people wouldn't buy it

Yes it has value you can trade a bitcoin for $5k/$10k/$20k whatever the exchange rate is at this moment. That isn't intrinsic value though.

From Wikipedia: "In finance, intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value."

https://en.m.wikipedia.org/wiki/Intrinsic_value_(finance)


alright my bad. i meant some value that is not tied to an underlying asset. But equating it with a scam like e-gold is not valid either. (and no currency or investment commodity has value that is anywhere near its intrinsic value)

> 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

This sounds dangerous and wrong, but the same thing happens if you buy a gift card or deposit cash into a checking account.

Now you have an Amazon gift card or bank debit card for $100 _and_ Amazon or your bank has $100 that they'll put back into circulation.

It's just how money works, it's nothing new with Libra.


the main reason why facebook went the route of stable coin is simple. What is the main reason for a currency holding value is a correlation between the currency and its military strength. Unlike other commodities which hold intrinsic utility , currencies have enforced utility. Facebook understands why most crypto currencies are volatile cause there is no authority to enforce utility, hence the problem of utility is solved. now comming to the reason why the FED is so strongly oposed to this, if enough people start using libra its a big FU to the US fed cause they cant nuke it without hurting themselves hence they want to kill it right now. For some context this is the same FED which allowed countless acts of financial loot run wild for decades. But now when they realise that its there ass thats on the line they flip out.

What about that makes it better to be embargoed by Facebook? That's a dystopia no one needs.

What about Libra is exclusive to Facebook? It's not "their" cryptocurrency, they just pitched the idea. The actual power behind libra is the Libra Association, which has a lot more scary companies participating.

I don't find this at all convincing. I believe Facebook will be managing much of the physical hardware involved, likely in their existing data centers. IMHO, the Libra Association will boil down to Facebook and the payment processors who have signed on. This strikes me as very much Facebook's currency.

Each of the 28 participants will run its own hardware and validator on it (there are hardware requirements on top of the 10M$). FB might control the only wallet, initially, but not the validators.

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


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.

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.


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.


> 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.


These aren't the same things at all. Words have meanings, and being financially accountable to the public "by exit" does not mean a private corporation is a democracy or a democratically run corporation by even the loosest definitions of these terms

I agree with you, but central banks like the Fed are not accountable like the government is

The Fed is certainly more accountable than Facebook. The Fed chair is appointed by an elected president; Mark Zuckerberg is appointed by various unelected rich people.

Mark Zuckerberg is appointed by Mark Zuckerberg. He controls a majority of voting rights in the company. If he wanted to he could completely ignore all other shareholders and there isn't a whole lot anyone could do about it.

Not directly accountable but still much more accountable than Facebook is. Even in a non-elected position there is still a duty to the people and greater good rather than fiduciary duty to shareholders.

The only real way the Fed is accountable to the people and greater good is to the extent that they don't screw the people so obviously and badly that the people (including the police and military) revolt against them, which is the same level of accountability for any dictatorship

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.

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.


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.


This presents no conflict with a healthy and free society.

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.


And if it is incorrectly regulated?

Yeah it would but what abkut the value of the currency when they change the rules?

It would go down, or up, like with any other currency.

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.


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.

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.

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.


facebook doesnt have to be in africa for Libra to succeed. Although i think it's pretty popular there anyway. And, no matter how tempting the chinese influence is, the Dollar is still a lot more attractive , and by extension Libra, which is backed by US companies mostly.

Facebook is a major player in Africa right now.

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.


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.

> 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.


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).

These two are not mutually exclusive

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.

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.


Nothing about Libra denounces the power of central banks.

Facebook just becomes an unregulated central bank.


I don’t know why people keep calling Libra unregulated as if some registered entity in Switzerland is going to protect them from gov scrutiny around the world. There’s no way they don’t face regulatory pressure as soon as they start operating, assuming it can even get to the size and scale where regulators even care about it.

if it did. it would clearly denounce their power. the US has waged many wars over the Dollar.

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

> 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?


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

Alternatively, a private entity which is typically described as under-regulated in its existing businesses thinks it can pivot into central banking without scrutiny.

Having a currency is not the definition of a central bank. Central banks are public institutions with responsibilities within a government. Casinos that issue their own chips are not central banks.

If we knew which government, I mean person, created bitcoin would the same apply? Or would the Feds be all over Satoshi Nakamoto?

FB has been the subject of several congressional and parliamentary hearings around the globe recently. Why would they not question Libra?


There are several crypto projects (some even fairly popular) where we do know who's behind them - Ripple, Stellar, Ethereum, Tether, Bitcoin Cash, Tron, EOS, etc. Hell, the core dev team members of Bitcoin itself is public knowledge.

I think it's interesting that while crypto was a bunch of hobbyists and startups, it was just a bunch of folks wasting their money, but now that FB is involved it's a threat to the global monetary order. (Personally, I think the threat of FB is overblown - I'd bet that it'll make some significant noise over the next 2-3 years but fail over the next 10 - but the threat of startups and new crypto projects is underestimated. While the government is obsessed with FB's 2 billion users, someone else will come up with a cryptocurrency that's actually useful and take those 2 billion users for themselves.)


>someone else will come up with a cryptocurrency that's actually useful

You named 8 different digital coins. Why aren’t any of them useful? Why do we need other ones?


It's like any other startup: building a product that's useful enough to get widespread adoption requires nailing a lot of different details. You leave one critical feature off and you don't get adoption. You get all of them right and the product takes off on a hypergrowth curve. It's like how Reddit took off once they added comments, or AirBnB took off once they started taking professional-quality photos. It's not that comments define Reddit (a Reddit with comments but no links or upvoting is a mailing list) or that photos define AirBnB (an AirBnB with photos but no booking, billing, or review systems is a travel blog), but that those were the last critical features needed for success.

Speaking of the platform coins (Ethereum, EOS, Tron), I can think of few critical features they're missing. Scalability is one of them, which Ethereum is working on and EOS has - the network has to support more than 10 TPS. The ability to host a pretty, intuitive UI on the blockchain itself (so that you don't also need to run a website that listens to blockchain events for average users to run your DApp) is another. Discoverability is another, letting ordinary users find useful apps and spread them around.


Do you view privacy as an important quality? Nano seems like a pretty good attempt at making a cryptocurrency that's useful as a currency, but transactions are not private and I'm not sure how big of a problem that is

I don't personally, but there are cryptocurrencies that have made some really big strides there: Monero and ZCash. I've heard that a lot of dark-web business is actually switching over from Bitcoin to Monero, so it's getting some real adoption.

One of the interesting things about the cryptocurrency space is that it's challenging one of our fundamental assumptions about economics, namely that currency is a winner-take-all market and everything works better if there's a single currency used for everything. Instead we're seeing that currencies can actually have different properties, and that this can actually affect which currency you'd chose to use in which circumstance. Want to do things that you don't want the government to know about? Use a privacy coin like ZCash or Monero. Want to let your computer programs transact economically? Use a platform coin like Ethereum, EOS, or Tron, and select which based on whether you want to write your smart contracts in Solidity, WebAssembly, or Java, respectively. Want to define a marketplace and create a utility coin to mediate transactions in it? That's what coins like BAT (Brave), Kin (Kik) and now Libra (Facebook) do.

The primary functions of a currency (store of value, medium of exchange, and unit of account) are also now getting unbundled: Bitcoin is used as a store of value, but not as a medium of exchange, while something like Monero or BAT is much more a medium of exchange than a store of value, and stablecoins like Tether or USDC are filling the unit-of-account role. That trend has been going on for decades - stocks and bonds are stores of value, but not mediums of exchanges or units of account, while in-game currencies are units of accounts but not a good store of value or unit of exchange - but the crypto space has made it explicitly clear.


What are the primary dark-web businesses?

* porn?

* child porn?

* drugs?

What else?


It's not exactly a corner of the web I frequent, so your guess is as good as mine. The ones I've heard of include drugs, armaments, zero-day security exploits, data breaches, and identity theft. Child porn and human trafficking are probably on there somewhere too. Porn (between consenting adults) isn't a dark-web industry, at least in the West: you can put a credit card into any number of adult businesses online and get your fill of any sexual fetish imaginable without breaking any laws.

Thank you for the comments.

We are not going to need any of them until we do. People just don't adopt them because wallets are still difficult to use, , they are a nightmare tax-wise and because most banks fear/hate them. But in a world beyond those obstacles, many of them will be useful for different reasons. Some will be safer as long term value stores , others will be fast enough for microtransactions. Considering that exchanging between them is trivial and instant, i think there will be many of them circulating in parallel

Thats the beauty of decentralization. You can't really blame one person for bitcoin's value today, you have to blame everyone who participates in it (Really, who would the congress question, and what could that person do? take down bitcoin?). While Libra is centralized so single point of failure

There are no decentralized cryptocurrencies.

Like all other so-called "decentralized" coins, Bitcoin rewards economies of scale. That means that it tends towards centralization.

Though of course Bitcoin has its own unique problems, like being deflationary (which is evil).


What? Are you aware that all commodities are basically deflation?

Do you think it is "evil" to buy commodities?

This is all about freedom of choice. If you don't like the properties of certain products, then buy the one that you like.

But lots of people would apparently prefer to spend their own money on deflationary assets. Who are you to say it is evil to do this with assets that one owns?


Who are you to police me for saying that it's evil?

You're welcome to your opinions, and I'm going to have mine. As you said, freedom of choice.

Personally I think that modern fractional reserve banking and the Fed are great, and bitcoin maximalists are overall not very smart.


Nowhere did I "police" your opinion. You are the one who doesn't support people's ability to buy deflationary assets.

Instead I was calling your opinion bad and in opposition to free choice.

How is owning crypto any different than just owning a commodity, which can be deflationary?

And why would owning a commodity be "evil"?


> There are no decentralized cryptocurrencies.

Extraordinary claims require extraordinary evidence


Thank you for recognizing that calling a cryptocurrency decentralized is an extraordinary claim.

you are welcome, but that would be the "ordinary" claim

I assert with exactly as much evidence as you (zero) that it is the extraordinary claim.

Show me a so-called "decentralized" coin that is designed to not just be dominated by a handful of miners. It's a natural consequence of proof of work, isn't it? Large-scale miners will always be able to buy electricity for cheaper than your average person.


Very few crypto currencies are censoring transactions.

If we define "decentralized" as "the ability to send transactions that are unlikely to be censored", then pretty much all cryptos fulfill this requirement.

Transaction censorship just isn't something that is happening on most cryptos. You can send whatever transactions that you want, and it almost certainly isn't going to be stopped by any centralized parties.


That's not my definition of decentralization, sorry. Censorship resistance is but one of many necessary requirements for me. Another requirement is that no single entity should be able to mine more than a small percentage of coins.

A truly decentralized currency would have built-in protections against any sort of concentration of power, whether it's based on the ability to buy electricity in bulk cheaply or based on the ability to censor transactions. To date no currency is decentralized.


If you had 51% of the CPU power within the Bitcoin network, would you a) choose to cheat with a rather high chance of crashing the exchange rate, or b) use the CPU power to collect rewards while leaving the exchange rate ”unaffected” with probability = 1?

Satoshi considered this scenario.

It is also a public ledger, ie even if you don’t mine it is easy to track everything.


some currencies have different consensus protocol, e.g. stellar. others are actively fighting it, e.g. monero. and even in the case of a takeover, forks are possible , ensuring decentralization

it's not just decentralization, it's competing decentralized currencies in a free market.


Well, this sort of meta-decentralization applies to all currencies including Libra.

I think you can either say that no currencies are decentralized or that all currencies are. In practice any currency gives up some axes of decentralization.


> applies to all currencies including Libra.

Yes, i m positive on Libra as long as it is possible to exchange it for any other crypto. I 'm afraid it's not going to be the case.


I think what is happening to Libra right now is a good example of why Bitcoin is so censorship-resistant minded.

I worked for a mobile gaming company who did mainly casino games with fake chips that you could buy, and they're now under investigation for violating gambling laws because their chips _acted like real money_ therefore the same laws apply.

Might be the same with crypto money where they'll be under the same laws as real money and trading.


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/

[1] https://compound.finance/


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.


How does the situation in Zimbabwe or Venezuela fit into your argument? Seriously.

I'd say that all governments and central banks are not equally competent.

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.

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.


>The point is that these technologies are permissionless and unstoppable. As long as the internet exists, you can't eliminate such technology and behavior

This is the myth that will apparently never die in the crypto community. Yes, the people with badges and guns and court orders absolutely can prevent crypto from being widely adopted if they want to:

In the case of Libra, regulators like the Federal Reserve can simply say 'no'. Unless the Libra Association hires a private army that can defeat the world's current best in a standing battle, there's not much they can do about it.

In the case of crypto in general, while I agree they probably can't prevent the .1% of the population who are tech savvy enough to manage their own wallets:

1. That's nowhere near enough people to get mass adoption

2. Much more importantly, the Feds can prevent businesses from accepting crypto for payment. If crypto can't be used for payments for legit goods (i.e. not drugs/hitmen), it's useless except as a means of pure financial 'bigger fool' speculation (wait, that's what it is now!) No one who operates a legitimate business is going to risk catching a felony if the US says 'bitcoin is illegal, 3-5 year sentence if you use it', etc. No payments for legit goods = no broader network effect. Instead you simply own the 21st century equivalent of a penny stock.

I'm not militantly anti-crypto, but the community is really naive about how much power regulators & law enforcement really has if they want to exercise it. If crypto becomes a 'thing', it will be another highly regulated finance product offered by Huge Company, like Libra. The libertarian (frankly populist) dream is not in contact with reality


Personally I think a lot of the hate is because users here knew about the technology early but didn’t invest in any meaningful way. They don’t want to think they made the wrong choice, so they call it a scam or a ponzi scheme to try to justify the decision not to invest.

The truth is that crypto is very scammy and that its value run-up in 2018 was a massive bubble, but that doesn’t mean the tech behind that bubble is worthless. Anyone who got rich off of crypto essentially got lucky, but that says nothing about how good that technology is or is not. Crypto can be good technology and a bad investment while still allowing risk takers to make millions.


Also everyone forgets that for every Amazon or Google in 1999 there were 25 pets.com flameouts. Hindsight is always 2020 and game-changers only seem obvious in retrospect.



Registration is open for Startup School 2019. Classes start July 22nd.

Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact

Search: