Is the financial world ready to trust Facebook?

News and opinion on finance

It started on Monday as a trickle. By Wednesday it was a torrent.

Comments arriving in my inbox from crypto enthusiasts cheering Facebook’s new stablecoin mostly predicted speedy and successful mass adoption thanks to the company’s 2.4 billion monthly active users. The only debate was whether the dawning of this new era deserves to be heralded as crypto 2.0 or internet 3.0.

My favourite line about Libra, which Facebook hopes to launch next year, comes from Ribbit Capital, one of the project’s venture capital backers. “We believe the world is ready to be inspired and trusted by Libra.”

Look. We’ve all had moments when that kind of gobbledygook spills from our lips, usually driving home after an all-nighter, eyes popping as the sun comes up with Orbital playing in the background.

The question is not whether the world is ready to be trusted by Libra but whether Libra and Facebook are fit to be trusted by anybody.

Asked to choose who I trust most from the world’s central banks, its private banks, world governments and Facebook, I would of course say none of them.

But if forced, that’s my order from most trusted to least. Central banks, the ones I speak to anyway, may make bad errors but have lots of good, smart people often motivated by a sense of public service.

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Banks are odd. No sentient being who was alive in 2008 should trust any of them and yet most of us do still trust them with our salaries. We expect them to look after our money, eventually resolve any problems even if their customer service is lousy and protect us from fraud. And we’re not too happy, it seems, about anyone else getting a look in on any of this.

Governments? Forgive me. I live in a country that just had a state visit from Donald Trump who wants our National Health Service bent over his table and that is about to see Boris Johnson become prime minister.


But Facebook? This is that company that, when not broadcasting terrorist atrocities, allowed Cambridge Analytica to harvest users’ personal data without their permission or knowledge and then target them with political propaganda designed to prey on the passions and fears they had revealed to friends.

Will banks play ball with Libra? Time will tell. The network says it aims eventually to be permissionless, with anyone who meets the technical requirements allowed to participate in verifying transactions. No bank could ever live with that.

Even as a permissioned blockchain to start with, there are obvious disincentives for any bank nervous of being fined for know-your-customer or anti-money laundering breaches, which is all of them.

The founding association’s paper on its blockchain tells us: “The Libra protocol does not link accounts to a real-world identity. Accounts controlled by the same user have no inherent link to each other.”

Perhaps sensing that this may sound a little dodgy, Facebook makes great play of the notion that Libra is supposed to help the world’s unbanked benefit from inclusion in a new financial system enabling cheap, secure and fast transfer of payment.

It’s a familiar problem that new blockchain and non-blockchain-based remittance companies have been working on for years now, along with the phone companies, governments, the Gates Foundation and many others. It is indeed a sad truth that being poor is a really expensive business.

It’s not clear how Facebook intends to help, though.

Mark Zuckerberg,

Users need to buy its stablecoins with contributions to the reserve of cash and other “low-risk” assets backing it to preserve its stability as a medium of exchange. Presumably they won’t be delivering bags of used notes to the Zuckerberg estate in Palo Alto or one of his homes on Lake Tahoe.

They’ll need some form of bank account or e-wallet already.

The paper on the reserve tells us: “There will be authorized resellers who will be the only entities authorized by the association to transact large amounts of fiat and Libra in and out of the reserve.

“These authorized resellers will integrate with exchanges and other institutions that buy and sell cryptocurrencies to users, and will provide these entities with liquidity for users who wish to convert from cash to Libra and back again.”

I wonder if these resellers will become banks in what Facebook envisions as a whole new financial system towards which this is just a first step. Who will oversee them?

The Libra white paper says: “We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system.”

For Facebook, regulation isn’t something it should be subject to: it’s something it should write.

No return

Facebook gives with one hand and takes away with another. Users of Libra do not receive a return from cash they contribute to the reserve that maintains it. Any yield from the low-risk assets that make up the reserve will first go towards the operating expenses of the association building a new financial system from which its founders intend to profit.

Anything left will pay dividends to those early investors, that include the likes of Visa and Mastercard, and which may prove handsome only if the network is successful and the reserve grows substantially.

Facebook itself offers potentially a very big closed loop for P2P payments, given that a quarter of the world’s population is on the network. And other networks have joined the venture capitalists backing Libra: eBay, Uber, Spotify,, Vodafone.

So, even if those poor unbanked people Facebook has made it its new mission to help must now forego interest on their cash, at least they have a cheap and quick way to book that hotel in Barcelona, in between buying some fake handbags on their smartphone, while riding a taxi to meet friends and listening to Ed Sheeran without any pesky adverts.

A last thought on privacy, regulation and governance. The paper on the Libra reserve says that “like many other blockchains, the ledger of transactions on the Libra Blockchain will be publicly accessible so that it is possible for third parties to do analysis to detect and penalize fraud”.

To penalize fraud, you have to be able to identify who commits it. So, who are these third parties that might see all the transaction history and what users are buying?

Oh, hi Mark.

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