THE LIBRA PROPOSAL – Isonex Capital
This article is written by Isonex Capital with a view on the impact the proposal for Facebook’s Libra coin is having on the digital-currency space. Digital currencies first came about just over ten years ago with the creation of Bitcoin, which for a few years remained almost unheard of outside of a fringe group of early adopters. In 2017, with the explosion in the ICO market, we witnessed rapid growth in the number of digital assets released, which brought digital currencies to public attention. This led to major international financial-management firms developing trading platforms to accommodate the demands of their high-net-worth clients’ interest. The last year has seen the emergence of many interesting projects that are impacting a range of industries, and blockchain technology is experiencing a steady growth in global adoption.
Facebook’s Libra coin has been highly anticipated since rumors emerged of their intent to enter the market, with many wondering what sector would be the target market. All these questions were answered with the release of the Libra white paper. Within hours of its publication, Facebook encountered bipartisan resistance both at home and abroad and put the spotlight on the entire cryptocurrency space, with leading banking institutions and governments showing strong resistance to the Libra proposal.
So what does Libra represent that has brought forth such a response? U.S. President Donald Trump tweeted that he was no fan of Bitcoin or cryptocurrencies, labeling them highly volatile non-currencies based on nothing but thin air. On Facebook’s Libra coin, he went on to say it would have little standing or dependability, and that if Facebook and other companies wanted to become a bank, they must seek a banking charter and become subject to banking regulations.
Trump’s tweets have been further bolstered by statements from the Federal Reserve Chairman Jerome Powell, who told Congress that “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” further stating that the project will not move forward until these issues are addressed. This was followed by Treasury Secretary Steven Mnuchin holding a White House press conference where he voiced serious concerns regarding the national security implications of Facebook’s coin and other virtual currencies. He said the potential for money laundering and other illicit activities was high and vowed that the treasury would crack down on law breakers when it finds them. Pretty powerful stuff for “worthless currencies created out of thin air.”
Anyone with any knowledge of blockchain and digital currencies is only too aware that every transaction recorded on the blockchain is completely transparent and open to public scrutiny. The same cannot be said of cash, which has always been and still is the default currency for most illicit activity, no matter which brand of criminal you happen to be. With sophisticated laundering techniques and the complicity of certain banks, it is difficult to trace and accounts for the majority of funding for illicit activity globally.
Mahatma Gandhi is attributed with the quote “First they ignore you, then they laugh at you, then they fight you, then you win,” The digital-currency space has already witnessed the first two stages, and with the emergence of Facebook’s Libra coin, regulators, central bankers and big government have come out fighting, using misinformation to persuade the majority of the as yet unknowing public of the “dangers” of digital currencies, while privately developing their own. Could this be because privately owned digital currencies threaten the existing order of financial control that those in power hold?
The world is switching to a cashless society, a transition that has already begun in some leading economies such as China and India. Now, you may argue that these nations have tried to ban digital currencies, but that isn’t the full story. What they are trying to ban is private digital currencies in favor of state versions that will be pegged to national currencies. These are known as stable coins. Just look at China’s central bank’s recent announcement of plans to roll out a central bank digital currency (CBDC). The idea of private digital currencies going mainstream fills governments and central banks with dread, since it challenges the monopoly they have long held on the issuance of money. Facebook’s Libra coin has panicked the establishment into dropping their poker faces and showing the world the true value of digital currencies, because one thing is for sure: powerful people do not waste time publicly talking about redundant technologies.
If there is any group that holds a lower public trust rating than politicians it must surely be bankers. With the unfettered power they wield over government policy, they represent the very worst of private enterprise over public interest. They are largely responsible for the global economic crash and yet continue to operate with complete impunity while rewarding themselves generously with other people’s money. So It’s almost comical that when you have the level of public mistrust that Facebook has earned, your next ambition would be to become a bank. This is the position that Facebook is going for, and is a game changer because whether they succeed in launching Libra under the current white paper proposal or not, the intent is clear, Silicone Valley has its eyes on the banking industry.
Under existing international laws, digital currencies are not recognized as a form of legal tender. That privilege is reserved for nation states that issue recognized currencies. Facebook’s Libra white paper is a direct challenge to the role of the state’s monopoly in the printing and issuance of money. If Libra is successful, it could transition monetary policy from central banks to the Libra association, which will have an adult user base in the billions and when complete will comprise of one hundred leading corporations. The Libra association will be no less than a quasi central bank with the potential to create the first true global currency. This would give Libra the power to compete in global currency wars with nation states.
Facebook’s own Calibra wallet will host all your transactions through their native platforms such as Facebook, WhatsApp, Messenger and Instagram, with more sure to follow as it acquires greater global dominance. This could lead to large swathes of national populations putting their savings into Facebook’s basket of stable coins, which in turn would weaken the ability of those nations’ central banks to set monetary policy. The ability to impact exchange rates is only part of it: if people buy, sell, save and trade these currencies, demand for state currencies and traditional bonds could plunge. This would undermine the ability of central banks and governments to buy and sell these assets to set national interest rates. It would emasculate this vital means of managing our economies, leaving only fiscal levers like taxation and spending at the disposal of states. What then?
I think Andreas Antonopoulos best sums Libra up: “What they are planning is a consumer retail-level SDR. The IMF is a global institution that is not controlled by governments, that uses contributions of members that they put in a basket of currencies, to issue a pseudo currency called special drawing rights that are part of the international framework of free-floating exchange rates. They are the lender of last resort for governments, and they do so in a very predatory manner where they impose extreme neoliberal austerity on the government that fall into their clutches, and they asset strip their industries, their water plants, railways and telecommunication companies. Well, guess what? Facebook’s gonna do that now. Because if you think about what Libra is, it is a special drawing-rights pseudo currency drawn on a basket of currencies that is funded directly by consumer activity, in the same countries where the government is going to come back and ask them for a loan or try to curtail their activity. This is very serious stuff; we just went post-national. The power to control money, which used to be the exclusive prerogative of the state, got kicked in the nuts by Bitcoin and decapitated by Libra…. The central bank control over monetary policy ended with Libra, because more and more tech companies which currently are worth a trillion dollars, once given the ability or taking the ability to mint their own money will radically transform their business models and would use that to generate more money than you can possibly imagine. Very, very soon they will dwarf the GDP of at least a third of the nations on this planet.”
It is hard to imagine that banks and governments have not seen the writing on the wall. They have had 10 years since the creation of Bitcoin to figure this out and yet it would appear that they have been caught completely unawares (first they ignore you, then they laugh at you — Gandhi). In a knee-jerk reaction, the Democratic majority that leads the House Financial Services committee in the U.S. has put forth a proposal to prevent big tech companies from functioning as financial institutions or issuing digital currencies. The “Keep Big Tech Out Of Finance Act” proposes that a large platform utility may not establish, maintain or operate a digital asset that is intended to be widely used as a medium of exchange, unit of account, store of value or any other similar function as defined by the Board of Governors of the Federal Reserve System. I think they have covered all bases, but the words “closing the door after the horse has bolted” come to mind.
How this plays out is anyone guess as we will have three different types of money: money of the government, money of the corporation and money of the people. But the real issue here is the effect this will have on the entire digital-currency market. Facebook’s intentions have literally opened the proverbial can of worms and has regulators and politicians, many of who know next to nothing of digital currencies throwing their hat into the ring of rhetoric. This is evidenced by U.S. Congressman Brad Sherman calling for a complete crypto ban in the U.S. I guess nobody told him that’s not actually possible, but lets say his proposed ban were somehow enforced, it would leave the U.S. in the dark ages when the world flips the switch.
A digital cashless society is on the way, and how it is implemented will have huge impacts as to how we function as a society. We are talking about a superior type of currency that offers the potential to reduce banking and remittance fees and to free up capital within financial frameworks, which would be enormously beneficial for the global economy. Digital currencies will reduce transaction speeds, improve transparency, and enable consumers to have greater control over their personal wealth. The implications for the rights of the individual to financial privacy are also of huge concern in this age of data corruption and manipulation. Blockchain and digital currencies have the potential to improve the lives of all citizens, even in impoverished countries. But this will not happen if regulators and bankers consider this technology to be the exclusive tools of the state to gain greater control over its own electorate.
*Isonex Capital is dedicated to the growth of digital currencies within the global marketplace and in facilitating investment into the blockchain ecosystem. We strongly believe in investor protection through security and transparency. We are committed to helping newcomers gain an understanding of the risks involved in this new asset class. If you would like to find out more about us, visit https://isonex.io
Published at Fri, 23 Aug 2019 21:41:51 +0000
Bitcoin Pic Of The Moment
From Bitcoin and beyond we look at where it all began from its inception to its current day notoriety helping shape the way in which we pay. We also look at what it means for consumers and merchants and how it can be easily integrated into new and existing platforms.
By devsteve on 2014-11-26 17:22:43