Facebook is issuing Libra, a new electronic currency, and everyone is rushing to explain it; perhaps the best overall explanation comes from Bloomberg’s Matt Levine. Most of the commentary focuses, unsurprisingly, on the economics. Yet there is also a very important political economy story. Here’s what you need to know about the politics of Libra.
How will it work?
Very simply, Libra is a digital-only currency that can be used for online payments. It is superficially similar to bitcoin, but despite what Mark Zuckerberg says, Libra does not decentralize control over the currency by using a blockchain structure like bitcoin. Instead, it is governed by the 29 founding members of the Libra Association, made up largely of Silicon Valley firms and four nonprofits.
What will it do?
Facebook is presenting Libra as an opportunity to expand financial inclusion for the 1.7 billion people globally who lack access to modern banking services. It is likely to be swiftly integrated into Facebook’s suite of communications platforms, including Messenger, WhatsApp and Instagram. Facebook promises that payment data will not be used to augment its wildly profitable advertising business, though it appears that users may consent to sharing their data with Facebook. The Libra team expects “multiple business models to flourish” on top of Libra.
Instead of supporting advertising, Facebook says its ultimate goal is for Libra to become the native currency of the Internet. This isn’t Facebook’s first try at this; the company launched its ill-fated Facebook Credits payment system in 2010. Facebook and partners hope Libra becomes a new foundation for digital economic activity, and the white paper suggests it is designed to allow more complex transactions in the future — presumably on apps initially built by members of the Libra Association.
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What are the trade-offs?
If Libra enters into widespread use, it could well provide some of the benefits extolled by the Libra Association, providing a low-fee, low-risk and easy way to send money across borders. For example, it would benefit migrants sending remittances home; global remittances were worth $689 billion in 2018. Financial inclusion might encourage inclusive growth, as Kenya’s M-PESA “mobile money” system has done.
However, Libra could also erode users’ privacy. The Libra Association says it will safeguard privacy by separating transaction data from users’ real-world identities, but Facebook has a mixed record on this front. When it acquired WhatsApp in 2014, Facebook promised it would not cross-reference user data between platforms, but the company was recently fined by European regulators for breaking that commitment. Libra will store metadata about every transaction, which could be cross-referenced with apps like WhatsApp to build detailed user profiles. Notably, Facebook argued in court this month that users have “no privacy interest” in any information they upload to it, even if they select the highest possible privacy settings.
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Even if user data is made fully anonymous, Libra offers a new avenue for corporations to acquire detailed information about the lives of their customers. Digital technologies make it possible to capture and record actions that are technically conducted in public but have always been difficult and/or expensive to surveil: where we linger in grocery stores, or if we frequent bars showing unauthorized streams of soccer games. Such quotidian behavior has traditionally remained obscure to outsiders, providing a bubble of ambient privacy around our lives. Libra will produce a trove of fine-grained information about everyday life, potentially extending the business model that Shoshana Zuboff terms “surveillance capitalism.”
Because Libra is targeted at unbanked people across a wide variety of countries, there are already concerns that it will separate the poor from the rich, expose users to incompetent or malicious app design, and make users more visible to nondemocratic regimes. Facebook’s “Free Basics” program to expand Internet access in developing countries spurred controversy before it was blocked by India in 2016. Critics see similar dangers with Libra.
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What are the politics?
Libra faces a barrage of regulatory challenges, inquiries and political opposition from across the world and is not helped by existing concerns about Facebook’s potential violation of antitrust laws and a history of privacy scandals. We can expect the coming weeks and months to be full of claims and counterclaims about its potential effect on poverty, law enforcement, currency stability and even national sovereignty. But given the nature of public debate in the United States and elsewhere, it is unlikely that those who are most plausibly affected — the unbanked it aims to help — will play a major role in determining the final shape of the project.
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Ben Power is a PhD candidate in political science at the University of Wisconsin at Madison.