Facebook should not be permitted to proceed with the creation of Libra. Facebook cannot be trusted when it comes to financial services. Libra will damage the integrity of the global financial system by eroding public trust in the institutions that back our money.
One of the committee members present to make an official statement at the July 16 Senate hearing was Ohio Senator Sherrod Brown, who was elected to the Senate in 2006 and has served as the ranking member of the US Senate Committee on Banking, Housing and Urban Affairs since 2015. In the hearing mentioned above, Sen. Brown criticized Facebook and its executive team, comparing them to child arsonists who view every burned-down house as merely another learning opportunity. As the Senator’s official statement from the hearing claims, “Facebook has demonstrated, through scandal after scandal, that it does not deserve our trust, and that it should be treated like the profit-seeking corporation it is, just like any other company.”
To support his claim of Facebook’s untrustworthiness, the Senator cites several troubling incidents from Facebook’s recent past. He speaks to the ways in which Facebook has disrupted the newspaper industry and consequently redirected profits away from real journalists and into its own coffers. Senator Brown also cites past psychological experiments Facebook has run on its users in order to ascertain new ways of increasing engagement across the platform. Finally, and perhaps most distressingly, the Senator cites a UN report detailing the ways in which the Facebook platform was used to spread hate, incite violence, and fuel a genocide against the Rohingya people in Myanmar beginning in late 2016. According to Sen. Brown, Facebook and its executive team have “proven over and over that they don’t understand governing or accountability.” Senator Brown concludes his statement by arguing that “this is a recipe for more corporate power over markets and consumers, and fewer protections for ordinary people.”
Meanwhile, the central bankers of Europe have not been bashful about their skeptical stance toward Libra. Yves Mersch, Executive Board Member of the European Central Bank, delivered a speech entitled “Money and private currencies: reflections on Libra,”on September 2, 2019 at the ECB Legal Conference in Frankfurt, Germany. Echoing Sherrod Brown’s emphasis on the role of trust with regard to monetary policy, Mersch argues that trust is an essential element to money’s ability to perform its function. Further, trust in money is derived from the independent institutions that maintain the stability and reliability of the financial system more broadly, e.g. the ECB and Federal Reserve. As Mersch states, “Only an independent central bank with a strong mandate can provide the institutional backing necessary to issue reliable forms of money and rigorously preserve public trust in them.”
Returning specifically to the context of Facebook, which has “a questionable track record in matters of trust,” according to Mersch, the Libra ecosystem is not only complex, but “cartel-like.” In other words, Mersch’s view is that the governance system proposed by Facebook (the Libra Association) lacks the fundamental underpinnings of institutional trust that support traditional sovereign currencies. Such a system will place control of the Libra money supply in the hands of private corporate actors who are “only accountable to their shareholders” and who have “privileged access to private data that they can abusively monetize.” In sum, Mersch argues that Libra’s promise is a tempting “siren’s call,” that leads only to disaster because it entails abandoning “the safety and soundness of established payment solutions and channels.”
Senator Brown argues that because of its history of far-reaching transgressions, Facebook is not to be trusted. In the words of the Senator, “We would be crazy to give them [Facebook] a chance to experiment with people’s bank accounts.” For both Brown and Mersch, the emphasis on trust marking the standard by which Facebook should be judged is key. As argued by Yves Mersch, this is because trust in money is derived from trust in the institutions that back the money. In this case, these policy makers claim, because we cannot trust in Facebook, we cannot trust Libra.
In part three of this series, I will explore the perspective of policy makers who argue that while misgivings over Facebook’s past transgressions may be warranted, misgivings alone are insufficient grounds for liberal-democratic institutions to place overly cautious prohibitions or needlessly strict regulations on one of the United States’ largest technology firms and most powerful corporations. Again taken from the US Senate and ECB, these policy makers see the current state of open communication and engagement with regulators as an opportunity to establish a framework that protects consumers and holds Facebook accountable to financial regulations.
Sources for this post
- US Senate – Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations
- Ranking Member Sen. Sherrod Brown’s Opening Statement
- ECB Board Member Yves Mersch – Money and private currencies: reflections on Libra