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Beware: Libra threatens to stabilise the World’s monetary system!

“We have security concerns with this initiative ” is every IT department’s Ace of trump’s for effectively stopping any project in its tracks. No board of directors will dare challenge said “security concerns ” since their personal liability is too great to risk it.

Those of us old enough to remember the Y2K soap opera know how diligent we all were in cooperating with the legions of consultants allocated to this pending doomsday event, while at the same time thinking what a load of rubbish the entire exercise was. I personally remember explaining to a Y2K vigilante that the computer code THAT I WROTE MYSELF was not exposed to any Y2K risk, only to be told that there were 3 layers of approvals needed to verify what i knew to be fact…rather than rage against the machine I quietly surrendered to the higher powers.

Y2K came and all our private doubts about the security risks were proven correct. Nothing happened. Y2K, it turned out, was an IT pink elephant fabrication (“we see a pink elephant, prove to us that there is no pink elephant “), that no one was game enough to challenge before it became a corporate tamagotchi requiring constant attention.

Rather than confronting the flaws in the global monetary system generally, the collective Governmental response to Facebook’s plans to launch its own ‘currency’ has been to float an array of pink elephants.  Let’s be honest, Libra is nothing more than a prepaid gift certificate that people can deposit with Facebook and use to purchase whatever is being offered by Facebook’s retailers.  Libra does not pay interest nor lay claim to anything tangible.  Instead its a swap from Government issued fiat money into Facebook issued fiat backed by a currency board of the Government issued fiat money that is swapped-in in the first place. If Libra operates in this way, then whatever happens to the Government fiat drives Libra. Libra is a benign translation of dollars/yen/euro/sterling into some gift certificate registered on Facebook…

…but whoa, the pink elephants that have been floated!  Libra will be a haven for terrorists. Money launderers. Drug dealers.  Retail junkies. Libra threatens a nation’s sovereignty and its ability to conduct monetary policy.  Libra will provide Zuckerberg with the means to control the international monetary system.  And so on and so on.  What truth is there to any or all of this?

Lets first deal with the terrorists/launderers/druggies/spendthrifts.  Entering the Libra system should require hard fiat to begin with.  Either the t/l/d/s uses, say, USD to exchange directly for Libra with the Central Repository of FaceBook (CRFB) or they elect to buy existing Libra from Facebook’s loyal supporters.  Libra does not just drop out of the air nor does it get funneled or produced by the t/l/d/s crowd.  In fact, it is hard to imagine a scenario where the bad guys have managed to earn their money other than in the official hard currency system – that is, the current system is to blame for the bad guys having access to Libra.

Next, the scaremongering that Libra will invalidate or compete with a nation’s monetary policy is also vacuous.  Just like Hong Kong’s peg to the USD, Facebook has elected to peg Libra to the existing official currencies in operation (a basked peg where the weights reflect the inflows to Facebook’s system).  Technically, an exact peg backed by a currency board (that is one USD is held for every USD represented in Libra) outsources monetary policy to the original currency issuers.  This means that the US Federal Reserve, the ECB, the Bank of England etc etc control the monetary conditions inside the economy of Facebook and not vice versa.

Finally, can Zuckerberg take over the monetary system?  This is challenging for the Zeitgeist would need to decide to break the strict link between Libra and its currency board, for example by issuing Libra without the hard currency to support it, and the holders of Libra would need to refrain from converting back to hard currency.  This is the Argentina problem – in the 1990’s Argentina famously pegged its currency to the USD without holding any USD to back the promise – and the trick did not last long.

Zuckerberg could, however, offer something tangible to back Libra in place of Government issued fiat…gold, oil, digital assets… something that an owner of Libra could confidently switch into should the supply of Libra become excessive and switch out of if Libra became more scarce than the physical assets.  That, Ladies and Gentlemen, would be a true threat to the official currency markets since it would represent a stable, convertible, medium-of-exchange …something that doesn’t exist in the current world of official fiat.

For some reason, however, none of the Government officials has mentioned this ‘threat’ to the world’s financial system.  The true threat of Libra is that it STABILISES the World’s monetary system!

 

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