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Posts Tagged ‘Libra’

Facebook’s Fake Money | Mises Wire

Posted by M. C. on July 19, 2019

The Libra is just the upshot of an entrepreneurial attempt to profit from the global market for payment services (and later perhaps also from the credit markets), and, of course, to collect as much precious transaction data as possible.

https://mises.org/wire/facebooks-fake-money

Starting in 2020, Facebook wants to offer its customers a global high-tech currency and infrastructure. The US IT giant says that this will provide many people around the world with easy and cost-effective access to the monetary and financial system. The new blockchain-based money is called “Libra.” Technically, it is something akin to a crypto-money-banknote covered by a basket of official fiat currencies (such as US dollars, euros, and the like). The heart of the Libra project is the “Libra Association” (LA). The non-governmental association, based in Geneva, Switzerland, is supported by founding members such as eBay, Facebook, Mastercard, PayPal, Spotify, Uber, Visa, as well as other renowned firms, and will be responsible for the operation and further development of Libra.

Libra will be created by participants depositing fiat currencies such as US dollars or euros with the LA, and the LA will then grant the depositors a corresponding Libra amount in a digital wallet, which can be used for payments via the Internet, smartphone, credit card or WhatsApp and messengers, i.e., Facebook’s chat services. The chances of success seem to be pretty good for the Libra: Electronic payment is a world-wide mega-trend. People seem to have become increasingly open to new technological ways of making payments. And if money can be sent to and fro via social media, many potential customers will presumably like it very much.

Traditional banks have good reasons to worry. The Libra is about to siphon transactions out of bank accounts and put them into the LA’s hands. Not banks, but the LA will collect the fees and will receive precious data on who pays what, when, and where. The banks will be left even more in the cold should customers begin to use the Libra for savings purposes as well. Because then they would also lose the time and savings deposits with which they refinance their balance sheets at low costs. Or think of the credit business: The LA may at some point also provide its customers with short-term consumer loans.

In any case, from a customers’ perspective it is a good thing if and when the competitive pressure in the banking business gains momentum; as is well known, competition stimulates the search for better products and lower prices, which benefits the customers. The now heightened competition from the fin-tech industry is undoubtedly quite a challenge for many banks. Not least because for decades state regulation has kept unwelcome outside competition from their backs, thereby, however, weakening their innovative strength. But our sympathies have to be first and foremost with the people demanding banking and financial services, not with the banks delivering them.

The critical question, however, is this: Is the Libra really good — or sound — money? Unfortunately, this question cannot be answered in the affirmative. Read the rest of this entry »

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Libra as a Competitor to Inflationary Central Banks | Mises Institute

Posted by M. C. on July 17, 2019

Therefore, Libra — if not impeded by governmental legislative power…Good luck with that.

We shall see if the Libra is as good as the article says.

It is described as a ‘private’  and ‘crypto’ currency.

This Zuck’s baby. He doesn’t do private or crypto.

https://mises.org/power-market/libra-competitor-inflationary-central-banks

Pietro Bullian Fabrizio Ferrari

…At first, we need to clear the ground from the most common mistaken facts about Libra running over the news. As detailed in this white paper, Libra will be a fully backed cryptocurrency, it will be issued solely upon demand, and its value will be given by a basket of reserves whose composition will be diversified, privileging safe assets and stable international currencies (as thoroughly described in the technical part of the white paper dedicated to the functioning of the reserve mechanism).

Thus, despite the rumors, we know as a fact that Libra will not:

  • run its own monetary policy, since it will not be in control of its money supply;
  • create commercial-banks money, since it will not leverage on its costumers’ deposits to create new units of Libra operating under a fractional-reserve scheme like regular commercial banks do;
  • be pegged to any existing currency, since it will not take a specific commitment to fluctuate in a stringent range vis-a-vis any currency or basket of currencies.

Lastly, the fear that a sudden bank-run may cause the collapse of the Libra is either irrational or it confirms early critics have not yet understood the basic functioning of the project. In fact, the fully backed-ness of Libra would make it much safer than commercial-banks deposits we daily accept as means of payment, because Libra would be always redeemable—at least—into legal-tender currency; this redeemability would not be just theoretical (as it occurs with commercial-banks money and fractional-reserve banking) but also practical, because a unit of Libra could be created if, and only if, a unit of monetary base (i.e., legal-tender currency) or a claim on it (i.e., a unit of commercial-banks deposits) were conferred in exchange for that very unit of Libra.

In other words, while commercial-banks money (that is, deposits) can be created out of thin air—simply granting a loan—Libra would be instead created if, and only if, backed by a formerly existing unit of money—either of the central bank or of commercial ones (recall: money of commercial banks are deposits, which entitle the owner to claim a unit of monetary base, i.e., legal-tender currency).

For all these reasons — sticking to what we really know about Libra so far — Libra will have a value which will be stable in time with respect to the main reserve-currencies of the world. The relatively stable value of Libra, together with its worldwide accessibility, is what we believe may have positive and interesting repercussions. Libra may become a safe, accessible, cheaply storable reserve of value for those people living in countries that experience unbearable high levels of inflation to this day.

Moreover, the analogies between Libra and the first steps of the Hayekian proposal of “Denationalization of Money” (1976) are strikingly patent, insofar as Libra:

  •  is a privately issued medium of exchange;
  •  is subject to a 1:1 reserve system, in which money-creation out of thin air is not allowed;
  •  remains fully redeemable in terms of existing legal-tender currencies.

Therefore, Libra — if not impeded by governmental legislative power — would provide consumers with a medium of exchange whose inflation would be the weighted average of the safest legal-tender currencies of the globe, thus naturally displaying a potential standard deviation of its value — that is, deflation or (more likely) inflation — closer to them than to that of more volatile currencies. After a while, highly inflated legal-tender currencies (especially in those countries with relevant governmental interference and political influence over central bank’s activity) would be gradually less demanded in exchange for goods and services and, were governments not to forbid payments denominated in terms of Libra-units (that is, were they to allow Libra to exist as a full-fledged means of payment), then Libra could (analogously to what is postulated by the Grisham’s Law, but —somehow — in reverse) drive governmental money out of the payment-mechanism and prompt agents to hold to Libra for payment-purposes…

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It’s No Bitcoin: Facebook’s Libra Currency Is Tied to Government Currencies | Mises Wire

Posted by M. C. on July 2, 2019

Ah, but … and here is the rub, the Libra is not a naturally limited good, as Bitcoin is, but can be multiplied to infinity. It is not stabilized by reference to a basket of commodities as Hayek recommended. Rather, it will be defined by a changeable basket of fiat currencies!

In other words the Zuckerberg’s Libra can be inflated to worthlessness, as has the Continental through the dollar since 1776.

https://mises.org/wire/its-no-bitcoin-facebooks-libra-currency-tied-government-currencies

In 1975 Hayek eventually gave a lecture entitled “Choice of Currency,” in which he articulated for the first time the provocative demand that the state monopoly on money should be repealed. The publication of the monographs Free Choice in Currency and The Denationalization of Money followed a year later, in which he expanded in greater detail on his ideas on competition between private money issuers. …

What shape would an order reflecting these power-sharing principles take, and how could it emerge? Hayek argues that such an order would take shape if the following liberties were granted:

Fast forward nearly a half century and Hayek’s call for the denationalization of money seems to be a real possibility, not just a crank libertarian position safely ignored by the monetary authorities.

The coming of the block chain technology and cryptocurrencies certainly suggest that the original post-World War II Bretton Woods “settlement” of the status of money, that gold and US dollars, redeemable in gold, were the basis for international settlements, failed. As have later revisions of the idea. Thus, an era of monetary uncertainty may give rise to possibilities for market-oriented reforms.

Bitcoin, as an example of “virtual gold,” gains its value from the limited number of units of that cryptocurrency and the expense in “mining” more of those units, not unlike real gold. While Bitcoin is the best known of the cryptocurrencies, CoinMarketCap.com lists over a thousand crypto currencies that are traded (though a significant percentage of these are actually ICOs — Initial Crypto Offerings — a way to raise funds for a particular project). Much of the power of the cryptos is that they can be easily, and privately, bought, sold, and exchanged.

Hayek predicted that normal market forces would apply to the goods we use to facilitate exchange (“currencies”) if only governments would get out of the way. In a free market for money he suggested that major financial institutions would sponsor competing currencies, probably defined by “baskets” of commodities. He speculates on how the market would maintain the value and stability of such currencies, far better than any political system of legal tender.

To some degree, this seems to be happening with cryptocurrencies.

And then along comes the 900 pound gorilla. Facebook, with two billion users, has decided to enter the cryptocurrency market with its Libra coin. Since the Libra would be usable as a currency on Facebook itself, the company probably has calculated that it will have a strong competitive advantage over any of the competing currencies.

Ah, but … and here is the rub, the Libra is not a naturally limited good, as Bitcoin is, but can be multiplied to infinity. It is not stabilized by reference to a basket of commodities as Hayek recommended. Rather, it will be defined by a changeable basket of fiat currencies!

That’s right. Facebook and Libra’s cooperating founding organizations (including PayPal, Visa, Uber …) hope to provide a stable cryptocurrency by tying it to a group of government currencies! According to Techcrunch:

A Libra is a unit of the Libra cryptocurrency that’s represented by a three wavy horizontal line unicode character like the dollar is represented by $. The value of a Libra is meant to stay largely stable, so it’s a good medium of exchange, as merchants can be confident they won’t be paid a Libra today that’s then worth less tomorrow. The Libra’s value is tied to a basket of bank deposits and short-term government securities for a slew of historically stable international currencies, including the dollar, pound, euro, Swiss franc and yen. The Libra Association maintains this basket of assets and can change the balance of its composition if necessary to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent.

Well, that’s it. Zuckerberg is no Hayek. And the Libra is no Bitcoin.

 

 

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Banks Will Soon Be Obsolete | The Nestmann Group

Posted by M. C. on June 26, 2019

Facebook, Amazon, Google, and Apple haven’t exactly done a great job of protecting user data. But traditional banks aren’t doing much better – a recent study from security consultancy Positive Technologies revealed that more than half of banks with an online presence allow fraudulent transactions and theft of funds.

There will be nothing crypto about your spending habits. The government and the ankle grabbing digital banks will make sure of that.

https://www.nestmann.com/banks-will-soon-be-obsolete

By Mark Nestmann

Last week, social networking giant Facebook announced that it plans to create what it calls an “alternative financial system” based on a cryptocurrency called the Libra. The crypto will be backed by a basket of currencies to keep its value stable.

Pundits immediately pronounced that the Libra could represent the beginning of the end for traditional banking. But while Facebook’s plunge into this space is the most ambitious effort by a Fortune 500 company to profit from the crypto market, the company hasn’t exactly done a stellar job of protecting user data. That makes me skeptical of its ability to safeguard your money.

Last October, Facebook announced that hackers had compromised more than 30 million accounts by taking advantage of vulnerabilities that have now been patched. A month later, researchers uncovered a vulnerability in Facebook Messenger that hackers could use to reveal the identity of the people with whom you exchanged messages. And who can forget the seemingly innocent quizzes that were used to gain access to 50 million Facebook accounts in an effort to affect the outcome of the 2016 presidential election?

It’s one thing to load photos of your cat doing stupid tricks onto your Facebook account. It’s quite another to trust the company with your money. Although Facebook says that Libra’s governance model will ensure “separation between social and financial data,” I suspect Libra will appeal mainly to people who don’t have bank accounts and have no practical way to open them. Facebook cited a figure of 1.7 billion adults in this category, with nearly half of them living in Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.

Still, the launch of the Libra is a proverbial shot across the bow for the banking industry. And it couldn’t come too soon.

Our global financial system is built on the flawed foundation of a poorly understood concept called fractional reserve banking…

The biggest risk of fractional reserve banking is, of course, the “bank run.” If a bank lends out too much of the funds on reserve and everyone wants their money at once, the bank won’t be able to pay everyone. Deposit insurance schemes evolved in the 20th century to shield bank customers from this possibility. As a result, bank customers in most countries treat their deposits, including those that are uninsured, as if they’re 100% backed by actual reserves.

Then came the 2013 Cyprus financial crisis and the collapse of the country’s banking system. In exchange for a €10 billion bailout from the European Central Bank, Cyprus agreed to force uninsured depositors to submit to a “bail-in.” Instead of getting their money back, depositors holding uninsured accounts that exceeded €100,000 received stock in the failed bank. Uninsured depositors at the worst-capitalized bank that failed lost all their money.

Bank regulators around the world quickly took notice, and by the end of 2014, decided to extend the bail-in model worldwide. Deposits in banks that are “too big to fail” will be “promptly recapitalized” with their “unsecured debt.” This avoids the taxpayer-funded bailouts that proved so politically unpopular during the 2008–2009 financial crisis.

And the largest chunk of unsecured debt is your bank deposits. Insolvent banks will recapitalize themselves by converting your deposits into stock…

Facebook, Amazon, Google, and Apple haven’t exactly done a great job of protecting user data. But traditional banks aren’t doing much better – a recent study from security consultancy Positive Technologies revealed that more than half of banks with an online presence allow fraudulent transactions and theft of funds. But security is likely to gradually improve, and the tech giants will provide much-needed competition for what was for many years an effective payments monopoly by fractional reserve banks.

I look forward to the day when the fractional reserve banking system takes its last breath.

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Guardians of money bristle at Zuckerberg’s new financial order

Posted by M. C. on June 24, 2019

Having custody of your own assets rather than depositing them in a bank is a totally different paradigm

The obvious Facebook concerns aside, digital money that the owner can actually control is the problem.

Bitcoin was originally envisioned as private banking. No one could stick it’s nose in your business. Facebook’s Libra? Forgettaboutit.

Privacy – there will be none, this is a Facebook/CIA project. Control – It’s extent is yet to be seen. Don’t get your hopes up.

The point of digital currency from a government/bankster perspective is to control your “money”. The bank wants to charge you to store your electrons. Interest? That’s funny!

Everyone wants to know your business. There will be no “crypto”.

The government wants banks to be able to shut you off at the flick of a switch. The bank and the government want to be able to give you haircut when things get bad.

This is a war on you and your cash.

https://www.bnnbloomberg.ca/guardians-of-money-bristle-at-zuckerberg-s-new-financial-order-1.1277277

Alastair Marsh

–With assistance from Michelle Jamrisko.

Facebook Inc. was hours away from the formal announcement of its ambitious foray into financial services, but French Finance Minister Bruno Le Maire was already broadcasting his discontent.

“It’s out of the question’’ that the social-media giant’s digital money compete with sovereign currencies, Le Maire said.

That was just the first shot in a torrent of criticism and skepticism from policy makers around the world. U.S. House Financial Services Committee Chair Maxine Waters promised an aggressive response from Congress. Former European Central Bank Vice President Vitor Constancio called the initiative “unreliable and dangerous.”

Led by the social network with more users than the combined population of China and the U.S., the project represents a potential challenge that the guardians of money have never faced: a global currency they neither control nor manage. And while the megabanks and their regulators face no short-term threat to their command of finance, advocates of cryptocurrency say the future has arrived and that there’s no turning back.

“It is the beginning of a new financial system where current gatekeepers are substantially less relevant,’’ said Joey Krug, co-chief investment officer at Pantera Capital, founded in 2013 as the first U.S. investment firm focused on Bitcoin.

Called Libra, Facebook’s new currency will launch as soon as next year. It will initially be used for sending money among friends, family and businesses through the Messenger and WhatsApp services and then be used for routine transactions.

Facebook founder Mark Zuckerberg’s ambitions extend beyond simply minting a new coin. The Libra token would contribute to a fairer world, where those now excluded from the banking system would have ready access to cheap and easy payments and financial services, according to a company white paper.

Libra is the latest example of how tech companies including Apple Inc and Amazon.com Inc have ventured into the financial industry, offering everything from payments to money management and lending. While finance currently makes up a fraction of their business, giant companies with huge customer bases have the potential to trigger rapid changes in the industry and introduce new risks, according to a report Sunday by the Bank for International Settlements.

“Technology is changing the basis of competition,’’ says Huw van Steenis, senior adviser to Bank of England Governor Mark Carney. “It’s tearing up walls between businesses. It’s not just Facebook trying to do a currency.’’

Moving into the heavily regulated financial-services industry via cryptocurrencies, which are seen by many officials as nothing more than a conduit for financing illicit activities, Facebook has shown little reluctance to lessen its confrontation with authorities…

Meanwhile, Waters said Libra is “like starting a bank without having to go through any steps to do it,” and that it’s seeking to “compete with the dollar without having any regulatory regime that’s dealing with them.”

While Libra is designed to be less volatile than cryptocurrencies like Bitcoin and is backed by a basket of securities and traditional currencies, some question how a technology company will interact with the monetary system. “I’m not entirely convinced that a tech company, at the end of the day, can be held accountable,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.

There are still many questions about how it will operate and its success is far from guaranteed. Yet the endeavor is being taken seriously by the financial-services industry because of Facebook’s scale and its already vast impact on the world.

While Facebook is now trying to sign up banks to the association governing the token, its new system is a challenge to banks that often act as middlemen in virtually all transactions, according to Charles McGarraugh, a former Goldman Sachs Group Inc. partner who has moved into the digital world as head of markets at cryptocurrency-wallet provider Blockchain.com.

“We are witnessing a re-orientation of financial services,’’ said McGarraugh. “Having custody of your own assets rather than depositing them in a bank is a totally different paradigm and a superior system to the too-big-to-fail construct that dominates the market now.’’

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Facebook unveils ‘its most invasive and dangerous form of surveillance yet’ with launch of Libra cryptocurrency

Posted by M. C. on June 18, 2019

“If you’re concerned with Facebook knowing too much or having too much access to your private data or social graph, the GlobalCoin will give Facebook even more direct access to your financial information,”

This project is the antithesis of bitcoin and is another step towards total control of data and users.”

Bitcoin was “crypto” because the transactions were to be private. Facebook…crypto to you but no one else.

I am continually amazed to see what people use plastic to pay for. Alcohol for one. Credit card companies, the state (in PA), liqour control board (in PA) and who knows who else. One has to be very naive not to realize this is data banked.

https://www.thesun.co.uk/tech/9319668/facebook-launch-libra-cryptocurrency/

FACEBOOK is launching cryptocurrency next year that will allow people to move money from their smartphone into a digital “wallet”.

The currency is known as Libra, which the social network says it has “no special role” in governing and will manage equally with a group of big companies.

Experts have branded the move a dangerous power grab that marks Facebook’s “most invasive” form of surveillance yet.

So far, Facebook has enlisted 28 firms, including Spotify and Uber, who each had to invest a minimum of £8million to be a founding member of the Libra Association, an independent not-for-profit membership organisation.

It wants to attract 100 businesses in time for launch, which it is aiming for the first half of 2020.

Libra is supported by a reserve of the world’s best assets and the world’s most trusted central banks, who gave the cryptocurrency “general cautious support”, according to David Marcus, who started exploring blockchain at Facebook a year ago.

“Libra holds the potential to provide billions of people around the world with access to a more inclusive, more open financial ecosystem,” he explained.

The social network is hoping that its collaborative approach can ease volatility concerns of existing blockchains and cryptocurrencies.

Facebook will operate its own digital wallet for people to spend Libra, known as the Calibra Wallet, which will be available in WhatsApp, Facebook Messenger and as a standalone app.

Users will be able to send money to each other initially, at low to no cost, the social network said.

Eventually, it intends to open the Calibra Wallet up to additional services, so that people can pay bills, buy goods by scanning a code or accessing public transport…

Not everyone was singing the project’s praises.

Phil Chen, Decentralized Chief Officer at HTC, said the move was part of a “dangerous” power grab by Facebook.

“If you’re concerned with Facebook knowing too much or having too much access to your private data or social graph, the GlobalCoin will give Facebook even more direct access to your financial information,” he told The Sun. “It’s not just access to the information of your transactions, it’s direct access to your wealth and capital.
If the top-line question about Facebook and antitrust is about whether to break it up and spin off the likes of WhatsApp and Instagram – well this global coin is the most invasive and dangerous form of surveillance they have devised thus far. This will easily become the most dangerous antitrust case in history.
If this is launched and adopted worldwide, we’re bound to see Facebook as the top 10 biggest companies for the next 100 years that have complete ownership of the customer and their data from their social graph to every transaction recorded through Facebook, WhatsApp and Instagram.
This project is the antithesis of bitcoin and is another step towards total control of data and users.”

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