Trump campaign exploits Bloomberg News blunder
There are poor ideas, bad ones and Facebook's Libra
Libra, Facebook's proposed blockchain digital currency, is a horrible idea whose time should never come because it vastly facilitates criminal and nefarious activities, including terrorism, drug dealing, human trafficking, money laundering and tax evasion.
Already, criminals lock the data systems of hospitals, municipalities and businesses, and release them only after they are paid with existing, unreliable, cryptocurrencies whose values swing wildly. Once Facebook provides these hackers with a globally-traded, reliable, anonymous currency, they will have a field day. All criminals (terrorists included) will be able to transfer funds with ease and confidence, avoiding the risks and costs they now face when they move hundreds of millions of dollars using "mules," bribed officials and shady bankers.
Libra will also create a safe haven for criminals because governments will be unable to establish and track these funds the way they do now, drawing on unique numbers etched to each dollar (or other currencies). And, because people will be able to directly send as many Libra as they wish, governments will be unable to draw on the information they now gain when banks and financial institutions report to authorities any transaction larger than $10,000.
In many ways, the situation is similar to what happened when the tech companies introduced new encryption tools and refused to help the authorities to decrypt messages - even after the courts ruled that the authorities needed access to investigate a phone used by a known terrorist. That is, the tech companies have created warrant-free zones. Free means liberty - for criminals.
Former FBI Director James Comey warned that "encryption threatens to lead all of us to a very dark place," that it "will have very serious consequences for law enforcement and national security agencies at all levels" and that "[i]t's the equivalent of a closet that can't be opened. A safe that can't be cracked." Libra, if it takes off, will fashion a warrant-free zone for nefarious currency transactions on a global scale.
In its white paper, Libra states that "[a]n additional goal of the association is to develop and promote" a worldwide ID. If those who buy or sell Libra would be required to show such IDs, that might mitigate the problem. But rather than allowing Facebook to introduce Libra and then eventually issue IDs, let it issue people internet passports now (we need them anyhow) - and then let's talk Libra.
The second reason Libra should be banned comes right out of international economics 101. If currencies cease to be national tenders, legislatures will be unable to limit the inflow or outflow of capital by introducing currency controls or by taxing transnational transactions or in most other ways.
The national central banks will find it much more difficult to rein in inflation or spur growth by changing the amount of money in circulation. This is what happened in Europe when several nations gave up on their national currencies and instead used the euro. They fixed the resulting problems, in part by granting a great deal of authority to the European Central Bank and the European Commission to manage national economies.
There is no way on Earth to create something similar for a global currency because of the differences in values and interests of the United States, China and Russia, among others. Hence, for nations to allow the introduction of a global currency in effect means that these nations are giving up, to a large extent, their ability to manage their economies - while there is no other authority to take over this essential mission. "If Libra was successful, you could imagine it would be something like the gold standard," Yale economist William Goetzmann explained. "We know what the problem with the gold standard is, which is fragility and financial panics and the inability of countries to use monetary policy to alleviate problems."
One may say that there are already all kinds of cryptocurrencies out there, and national economies have not suffered. But this is the case because these currencies are marginal in size compared to Libra. Facebook already has more than two billon users, and it also hopes to make Libra available to about 1.7 billion people who now have no access to banks or other financial institutions.
Moreover, because their values fluctuate wildly, most people avoid the current cryptocurrencies. Many lost their funds because they forgot or misplaced their passwords, which cannot be retrieved in crypto world. Cryptocurrency exchange QuadrigaCX, the largest crypto exchange in Canada, lost 190 million dollars' worth of customers' funds following the sudden death of the exchange's chief executive and co-founder, who took the password with him. Many others lost funds in a score of cryptocurrency exchanges in less than a year, including $78 million at Bitfinex, 17 percent of all crypto assets at YouBit, more than $60 million at NiceHash and $400 million at Coincheck.
Libra will be much more stable and reliable. One must assume that hundreds of millions of people will use it once it is widely available. It will therefore have a major impact on the management of national economies, basically making them akin to ships whose rudders have been disabled, while new strong currents push them about.
Amitai Etzioni is a University Professor and professor of international affairs at The George Washington University. Click here to watch a recent, four-minute video "Political and Social Life after Trump." His latest book, "Reclaiming Patriotism," was published by University of Virginia Press in 2019 and is available for download without charge.