Daniel Evans is part of the team that started the Gibraltar Stock Exchange (GSX), which is now open for security token listings. Opinions are his own.
The excitement about Libra is premature. Maybe Zuck’s got more to share, but right now there’s very little information, and Libra has a lot to prove. Libra’s main stated mission is to service the world’s poor and unbanked. This seems unlikely to be the whole story…
Facebook’s source for the 1.7 billion figure is the World Bank’s Global Findex Database 2017. Findex also believes that 1 billion of these have mobile phones and 500 million have internet access.
However, Findex also says that over half of the 1.7 billion come from just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan.
More than half of these are in places where:
- Cryptocurrencies are banned
- Facebook can’t freely operate
- The country is under heavy FATF restrictions (due to money-laundering and anti-crime concerns)
- Or, it faces other limitations.
Targeting these unbanked just doesn’t seem plausible. How are they going to get in and get people to use it? Who and how many people are realistically going to join? How fast does Libra realistically expect adoption to be and is it worth it?
These jurisdictional limitations also help to explain why Libra doesn’t have any local partners anywhere with a relevant market presence or customer base. Out of the 28 founder members of the Libra Association, only one, Mercado, is based in a developing part of the world (South America). None are based in Africa or Asia where most of the world’s unbanked actually are.
Libra expects to have 100 members by 2020. Perhaps some of them will be in places, with networks, and local ground presence and knowledge, to actually roll it out. Then again, the Breakthrough Initiative, a founding member with Zuckerberg on the board, says its main mission is searching for alien life, so Libra already has outer space covered I guess…
About the details
Stable currency plans also need further explanation.
The countries left where it can access the unbanked sometimes have significant currency swings. The proposal is to make Libra very stable by backing it with a basket of yet undecided fiat currencies hoped to have “low volatility.”
OK.
Well, the definition of volatility and its adjunct risk is tied to the asset/liability profile of the user. In any economy it’s a better idea that your earnings and debts should be in same currency. There are numerous cases of developing economies taking on debt in or relying on foreign currencies and it ending in disaster.
Never mind developing economies, just look at southern Europe and the northern dominated euro. Libra risks inflicting this sort of mess on the people it wants to help and who need this problem even less than comparably richer Europeans.
It doesn’t work for countries to rely on foreign currencies. For individuals or small businesses with wages and expenses in local fiat…this looks suicidal.
Libra may have good intentions. It needs to answer why this isn’t just a rich country solution being pushed on poor country problems. It’s like when well-meaning philanthropists donate solar panels without engineers to maintain them, or livestock which are ill-suited to the local climate, or irrigation pumps where there is no power grid.
The stakes are obviously much higher if a new currency is implemented and it goes wrong.
What about Asia?
Facebook also have some questions to answer about China.
China’s Belt and Road Initiative (BRI) is sprawling. China has signed cooperation documents with 126 countries and 29 international organizations, many in the places where Facebook might hope to service.
Many large projects are already underway with Chinese cooperation. Ports, railways, highways, power stations, aviation, telecommunications and finance. It seems very unlikely that China wouldn’t also want to target the unbanked in these countries and extend its technological and financial influence.
Is Facebook prepared to go up against China? That’s after it’s done looking domestically at anti-trust monopoly cases, objections from regulators, the Federal Reserve and Congress, and internationally at places like the Bank of England or the French Finance Ministry.
On the other hand, China has long been a big center for bitcoin miners, cryptocurrency trade and was a major centre of the ICO craze in 2017.
It seems highly unlikely that similar-profile Chinese companies to Facebook have not already considered this idea and run some numbers. They are reportedly not following Facebook any time soon.
Has someone like Jack Ma figured it’s perfectly fine selling things to unbanked Chinese in the existing way? Is a new system and having to educate people on a new cryptocurrency not worth the hassle? For now, big Chinese technology companies seem happy to stick with conventional payment networks, don’t want a blockchain solution, and don’t want to try a battle with the Chinese treasury.
And that brings things to the final thought.
Just Poke Me
Facebook got big by giving away free social media and selling targeted advertising mostly in G7 countries.
This works when the targets have money to buy things. What is targeting the subset of 1.7 billion unbanked actually worth? What do they buy that is worth advertising? How is Libra actually intending to make any money?
What is the point of Libra? Skeptics and general grumpies might say it’s one of these:
- Publicity stunt. Maybe Facebook wants to divert attention away from accusations of grubby deeds like privacy violations, political manipulation, and censorship, and toward a lofty and socially pleasing enterprise? Maybe Facebook wants to recover its image from 10 years ago when it was still cool, new, and energetic?
- Search for new revenue. Maybe Facebook is trying to make up for its decreasing, aging user base?
- Financial data. Maybe this is a longer-term Trojan Horse or a test-bed for Facebook’s future?
- Crush competition before it gets started. Maybe Facebook is getting spooked by the growing numbers of smaller social media and messaging platforms which are crypto ready, like Minds, Kik or Telegram, which threaten to keep sapping Facebook’s and WhatApp’s user bases and threaten their standing?
- ‘Are we alone?’ Maybe Breakthrough Initiatives has finally fulfilled its goal of finding alien life, specifically Zuck’s own extra-terrestrial race? They’re all unbanked, with no accounts at JPMorgan, and a prime new untapped demographic perfect for Libra.
- Zuck the Benevolent. Believers and optimists may well say that maybe Zuck’s interested in technological progress, believes he can do a good job, and likes new challenges etc. Sure, why not?
This piece truly isn’t about making any judgement on any of the guesses above or any other plans for Libra. Not much has really been announced and it’s too early to assess.
However, a dispassionate, fact-based and common-sense analysis shows Libra is likely not anything to do with servicing the 1.7 billion poor and unbanked in developing countries.
Maybe the unbanked are a lot richer than we realize or will be soon. Maybe Libra has made more progress than we realize in getting the right governmental permission to access crypto-hostile and generally difficult countries. At the moment this just looks either poorly planned or there are other, smarter things to come. It just isn’t credible that this is about servicing the unbanked.
Zuck, if you want help, I have some ideas. You can find me on Facebook.
Zuckerberg image via Shutterstock