Davide Casaleggio is one of the top leaders of Italy’s Five Star Movement. He is president of the Rousseau Association, which created the movement’s digital platform.
MILAN — Paper money is usually considered immutable but in reality, it is a relatively recent invention. Over centuries, technological and social innovations have changed the way we use money and what humans consider valuable legal tender. For about a thousand years, for example, people on the Micronesian island of Yap used large round stones known as rai as a currency. In 1643, Europeans who had arrived in Massachusetts adopted a local Native American tradition of using shells as legal tender. In Europe, two centuries later, banks began to be able to communicate with each other quickly, thanks to the invention of the telegraph and the wide use of trains and banknotes.
It is clear today that cryptocurrency technology is an important innovation in the history of money. And while no state or central bank has yet embraced the innovation, Facebook has an ambitious plan to do just that. Libra, the company’s forthcoming cryptocurrency, could be a dominant currency in a few years, or it could be but a memory surpassed by something else, a Napster for the crypto age.
Despite the uncertainty, issuing a new currency is a smart move for Facebook. Most of the company’s potential growth in terms of users is outside of North America. However, non-Western new members do not generate much revenue for the company. Ninety-eight percent of Facebook’s revenue is generated by advertising, but this model only seems to work in North America and Europe so far. Facebook earned almost $30 per user in North America but less than $3 per user in Southeast Asia. The average cost for Facebook to serve a single user is estimated to be around $3.43. So if Facebook doesn’t find a new business model for its expansion in Asia and Africa, it risks not being able to support further growth of users in the developing world, where the number of people connected to and active on the Internet is growing rapidly.
All cryptocurrencies currently in use lack something. Bitcoin has the great advantages of being widespread and of being separate from a central governance system. However, its volatility has thus far prevented it from being a currency of exchange. Also, the fact that bitcoin consumes more energy than Switzerland makes it unsustainable from an environmental point of view. There are also some 2,300 other cryptocurrencies, but they have neither the necessary widespread adoption nor backing by a sufficiently robust organization to establish them as exchange currencies.
Libra could be the most promising option yet. Given Facebook’s current user base, over two billion people will have access to the digital currency on day one. Through its network of partners, which includes Vodafone, Visa, Booking.com, Spotify, PayPal and eBay, the impact could be much greater, making it the new Esperanto of currency. However, there are basic questions that communities and countries must ask, especially when managing money becomes the domain of private individuals or a group of private companies.
What will happen to people banned from Facebook, for example? Will they still be able to access their Libra wallets? And if they had signed up for a smart contract, will it still be valid? Will Facebook and the Libra Association, the non-profit organization that will govern the Libra, be able to re-use reserves? Will the rules for Libra be changed by a group of private companies? Will Facebook discount its or its partners’ services if Libra is used to buy them, to the detriment of competitors who offer similar services but without the control of the currency?
It is said that Libra will be a “stablecoin” — based on a stable collateral. But will this change in the future? The blockchain technology on which cryptocurrency rests will have pseudonymized data, so will authorities be able to trace fraudulent uses upon request? Which authorities? What role will private and central banks play?
To answer these questions democratically and transparently, Facebook must hand over significant control of its currency to the United Nations. At a minimum, at least half the votes in the Libra Association should go to the U.N. For anti-money laundering, it will probably be necessary to activate an identity verification system, perhaps a digital passport, for potentially billions of people. This should be handled by the U.N., which will have to define the standards for how people control their data — and money — online. This should be informed in part by the handling of international passports, which a U.N. specialized agency set standards for in 1980.
The U.N. already proposed a global currency ten years ago, but the costliness of replacing a worldwide cash system probably prevented the idea from going forward. Today, cryptotechnology removes this barrier, and the U.N. itself has touted the fact that “innovations in digital finance have made financial services accessible to millions in developing countries.” Some U.N. agencies already use cryptocurrency in their work, but talk of uniting the organization on its own cryptocurrency has not come to fruition. If the Libra Association takes care of establishing and running the system, under the watch of the U.N., we may see faster progress.
A global cryptocurrency system should not be in the hands of a single company alone. We need to address this right now, when there are still no impacts on people. Once Libra reaches millions of users and has created new habits, it will be too late.
