Bank of Facebook: A financial analyst says the Libra is 'an absurd idea'

Facebook already knows what you want to buy and if the tech giant gets its way, it will give you the currency to buy it as early as next year.

This week, Facebook announced its plans to launch its own global digital currency called Libra.

Facebook and WhatsApp users could buy Libra with their dollars and then use Libra to shop or send payments around the world with no fees.

Unlike other cryptocurrencies, Facebook's Libra would be backed by some of the largest publicly traded companies in the world.

But Matt Stoller, a former financial policy advisor to the U.S. Senate Budget Committee, says this move would take the company out of the business world and into the realm of a sovereign nation.

Stoller, a fellow at Open Markets Institute, says Facebook's plans are in fact "absurd" and there are national security concerns that will make it unworkable. He's part of his conversation with Day 6 host Brent Bambury.

What was your first reaction when you heard about Facebook's plans to launch a global digital currency?

When ... I read that they created something called the Libra Reserve, I was like, "Really? really? you're creating something called the Libra Reserve to replace the Federal Reserve or something? Like seriously? That's how arrogant you are?"

It's an absurd idea to create a global currency system managed by a private group of people. I can't tell you how ridiculous it is.

It's being compared to a cryptocurrency and there already are, of course, cryptocurrencies. They're volatile; people who invest in them are taking a risk. But what makes Facebook's Libra less or more sinister than bitcoin? 

This system, Libra, is different than cryptocurrencies because it's actually backed by major institutions: Facebook and Uber and Mastercard and Spotify and so on and so forth. And it's also backed by a reserve.

So they're going be putting a pot of government-backed assets or core currencies or safe assets in Switzerland and they're going to say, 'Hey, if you buy a Libra with dollars and you want to sell that Libra, we have a store of dollars in Switzerland then you can get that back if you want to."

How we structure our trade, our finance, our geopolitics — those are questions for sovereign nations, for our leaders that we elect. They're not questions for some tech bros in California to determine.- Matt Stoller, fellow at the Open Markets Institute

The other thing is that cryptocurrencies are hard to use, whereas this one is going to be embedded in WhatsApp and Facebook, and presumably a whole bunch of other companies, and so it should be easy to use.

When you mention that there's going to be a Libra Reserve, that makes me think of a sovereign nation's economic system. And you say that there are actually implications for national security if Facebook creates this global currency. Can you tell us a little bit about those?

I mean, honestly, I can't roll my eyes enough at this. It's a ridiculous idea.

There's a private council of corporations that will organize the rules for this currency … and the idea is that they will create a kind of global frictionless currency that can ...  move money around the world.

And you know what? That sounds really nice, but we have friction embedded in our financial system for good reasons. This is sovereign power because international relations, in some ways, flows through our currency systems. Trade flows through our currency systems.

How we structure our trade, our finance, our geopolitics — those are questions for sovereign nations, for our leaders that we elect. They're not questions for some tech bros in California to determine.

It seems pretty clear that you don't believe this is going to work. But what if it does? What if billions of people start using Libra? What happens then if it crashes? Who is responsible for whatever economic fallout would be the result of that?

I think it was a central banker in England, I'm not sure, [but] they said that this is, "instantly systemic," which is to say … when you create a currency payment system like this, it becomes too big to fail.

So if … there was like a large theft at the Libra Reserve or whatever, and then everybody wants to sell their Libra — and let's say that [the Libra] is embedded in how we do business —  then governments are going to have the choice of 'do we do a massive bailout' or 'do we do allow all of this economic damage to happen.'

Why are we assuming that, like, Uber and Facebook know what's good for people in, like, Tanzania? I mean it's ridiculous.- Matt Stoller, fellow at the Open Markets Institute

And so that's why it's considered instantly systemic. And that's a choice that governments and democratic institutions shouldn't have to make.

It's why we set up the Federal Reserve in the in the first place. It's why central banks all over the world were set up. It's why we have bank regulators.

Matt, I know you're skeptical. But Facebook is trying to win over skeptics like you saying things like 'this could be an alternative to traditional banking systems in the developing world.' So could Libra be a good thing for people who don't have access to banks?

I mean, maybe. But ... why not allow people in the developing world to develop what's good for them? Why are we assuming that, like, Uber and Facebook know what's good for people in, like, Tanzania? I mean it's ridiculous.

We know there is a great payment system in Kenya called M-Pesa, which is run by Safaricom, their local telecom network. You can do payments via SMS and it's really great. There's a bunch of technologies like that circulating in Africa, in countries where the payment networks and the banking networks are not particularly advanced. They've actually kind of leapfrogged, in a lot of ways, the technologies that we use.

Why not let them continue on that path of development, where they develop their own systems based on their own needs instead of trying to impose this kind of weird global system top-down, from California or wherever, on everyone in the world? It doesn't make any sense.

Facebook is also trying to tell us that we shouldn't worry because they will not use data from Libra to target their clients with ads. Do you think that that is enough to quell privacy concerns?

Yes, I'm sure everybody believes Mark Zuckerberg. That guy's super trustworthy. I mean, seriously, how many times are we going to witness these guys cause problems, cause damage, and not care?

And now we have Zuckerberg saying, "Well, maybe you should put the entire global payment and currency system into my hands."

The guy clearly has learned nothing. We clearly have a serious problem with sovereignty and democracy. We have to do something about Facebook. And if we don't, they're going to keep trying to expand their power radically, like they're doing here.

This transcript has been edited for length and clarity. To hear the full interview with Matt Stoller, download our podcast or click 'Listen' above.