Fred’s Views - Issue 4
Fred's views
Issue 4
A weekly summary of what I've found interesting at the intersection of economics, finance and technology.
Revisiting Libra
Two week after the announcement, Libra was still generating a lot of ink, but the news was decidedly more subdued, as more details percolated through and people developed a better understanding.
The Verge had a good (snarky) overview of the new currency, which does a good job highlighting some of the main concerns around it. Three things stand out, just from the perspective of a simple user:
- Unlike a normal bank deposit, money that a user would exchange to buy Libra would not gain any interest, if left within the Libra system. Not that deposit interest rates are very high at the moment, but still.
- Holdings in Libra, when converted back into government currency, could be liable to tax, for example capital gains tax.
- A key component of a successful currency is a minimum of trust in the authority issuing and controlling the currency. Given what we already know of Facebook in this area, they have an uphill battle to fight. This was nicely illustrated in one of the charts in this article ($), which shows a gulf in trust between Facebook and the banks.
National governments and supra-national institutions are unlikely to be accommodating either ($). Libra will not be allowed to operate without regulatory supervision, which will undo much of the purported cost savings in cross-border transfers, for example. I mentioned this in last week's newsletter as well, because this would have been obvious to anyone who works in banking, and it will be the biggest challenge to overcome for Libra. It doesn't seem to feature prominently in Facebook's current thinking though.
Moreover, the Libra announcement seems to have put cryptocurrencies in focus for the regulators, and they are now likely to take a deep interest in all the other cryptocurrencies out there. Patrick Jenkins in the FT describes this as a silver lining ($) of the announcement.
Government alarm is not limited to anti-money laundering and KYC. For a smaller or developing nation, the unbridled introduction of Libra could lead to a significant disruption to the existing national currency, and would imply a loss of control over monetary policy and hence the economy. Any government is unlikely to let that happen easily.
Some of the partners in the initiative seem to have estimated these challenges correctly, and are reportedly rather non-commital in their support. This is not surprising, it even seems sensible, but it certainly makes Libra's foundations look a bit less strong.
We'll see how the Libra story develops over the coming weeks and months, but I wouldn't be surprised if it quietly disappears in a few years, much like some other Facebook products.
Short dispatches
Food delivery service Grubhub is apparently setting up websites that mimick those of its restaurant customers and taking orders through there to be able to charge extra commission in the process... Read
Apparently it's pretty straightforward to scrape payment transactions off Venmo and then potentially use the data for spearphishing attacks, for example. This is not a clever hack but rather the way Venmo is designed, which leaves me scratching my head. Read
Very worrying, if not surprising: “Trump officials weigh encryption crackdown.” Read