It’s not as wild because Libra is not exactly cryptocurrency after all — at least, not as most people understand the term. Blockchain technology will underpin the system, just as it underpins bitcoin. But where bitcoin is truly decentralized, Libra’s infrastructure will be run by trusted partners, most of whom must pay $10 million to get started (and also get a vote in the not-for-profit association governing the currency). Where bitcoin is speculative, Libra will be stable, at least in design, backed by a basket of “low-risk assets,” including established currencies such as the dollar, euro and yen. Transactions will not be anonymized, so governments will theoretically be able to track down bad actors.
Facebook’s plans are, however, untethered in ambition. In the long run, if Facebook has its way, people around the world will rely on Libra. Low transaction and conversion fees will allow people to send payments to friends and family at no additional cost, especially across borders. Low fees will give restaurants and shops an incentive to participate. The unbanked, armed with nothing but cash and a smartphone, could go to a participating local service and turn in their money for a chance to participate in an Internet-wide economy.
All sorts of financial services could be built on top of the system, and the subsidiary that Facebook has created to run its digital wallet, Calibra, could become a route toward eventual moneymaking for the company, and toward indispensability. Founding partners who poured millions of dollars into starting up the system would make money, too, if the reserves generate enough to be profitable.
Facebook and its partners won’t be minting Libra out of nowhere, but will issue it only when someone hands over real money, which Facebook will hold in reserve, a design meant to assuage fears of a run on the currency. The exchange rate will at first be pegged to approximately one U.S. dollar and fluctuate with the backup basket of assets thereafter. If Libra really does become the currency of the world, though, the association could simply change its own rules — and there is also nothing to stop it from playing with its asset basket as it pleases, moving markets in the process.
There’s plenty of skepticism about the institutions in charge of global monetary policy, but at least the Federal Reserve operates under some degree of democratic control. Libra, at its most powerful, would outsource that control to a consortium of private actors — 27 partners so far, 100 if Facebook meets its launch goal and potentially thousands more if the system one day becomes decentralized. Plenty of technical, logistical and regulatory challenges await, which means it might not work at all. But a more daunting possibility might be that it does work. It’s not clear the world is anywhere close to ready for that.