The potential injection of significant amounts of privately issued money into the financial system, without regard to the real economy or its productive capacity, would also have significant consequences for United States monetary policy and sovereignty. Despite its claims to the contrary, the Libra Association would be effectively conducting monetary policy, both when it determines the composition of the basket of sovereign currencies to which the value of Libra is pegged, and when it acts as the “buyer of last resort” for purposes of maintaining the stable value and supply of Libra coins. Unlike the Federal Reserve, however, the Libra Association would exercise these core central bank powers without the legally mandated public responsibilities and oversight framework of the Federal Reserve Act of 1913.
There is currently very little information about how the Libra Association will conduct its monetary operations (an inherently complex undertaking even for the most knowledgeable experts). We do not know which entities will determine the weighting of each sovereign currency in the basket, how management and governance of the Libra Reserve will work, how the Reserve’s managers will ensure that its assets always maintain their value and are fully liquid, or how they will handle any potential conflicts of interest.
We also do not know what any authorized dealers — who will have the exclusive right to purchase the freshly “minted” Libra coins from the Libra Association — will charge their customers for the coins. If there are any markups, the size of dealers’ markups will directly affect the price of Libra to end-users, and if there are several layers of dealers and sub-dealers, charging separate fees, then the real price of Libra will be anything but “stable.” It may also become another avenue for bankers to charge their customers opaque and predatory fees.
More generally, if Libra were to become a ubiquitous global digital currency, it would fundamentally change the relationship between the Libra consortium and monetary sovereigns. Practically speaking, the exchange rates for sovereign currencies would be determined by reference to Libra, and the fluctuations in the value of Libra would be increasingly perceived as fluctuations in the value of the sovereign currencies. Thus, if the majority of Americans were to get paid in Libra and made their payments to others in Libra, Libra would become the true “constant” value for them; its volatility would become the volatility of the United States dollar. Such a shift would give Facebook and its partners tremendous power over the sovereign governments that are supposed to oversee their business operations.
Finally, despite Facebook’s talk of “financial inclusion,” its plan might lead to coercive inclusion in, or exclusion from, the Libra system — and, by extension, essential financial services — for many Americans. This type of abuse of market power can take numerous forms. Individuals’ access to, or price for, Libra could be implicitly or explicitly conditioned on terms that include granting Facebook and its Libra partners greater access to personal data or purchasing other goods and services offered by these companies. Tech platforms’ data-harvesting and dynamic pricing capabilities would render these practices difficult to detect and punish under the existing laws.
Availability and pricing of financial products and services within the Libra ecosystem could conceivably also be based upon some form of social scoring or loyalty points maintained by Facebook, its affiliates or partners. This would allow Libra to amplify Facebook’s and other consortium members’ ability to collect and monetize their customers’ personal data, only partially constrained by lending, credit reporting and debt collection rules not designed with a closed-loop digital marketplace in mind.