PICA #055

Pixel coins.

Funny Money.

Libra is a make or break move for the Facebook brand, here are three reasons why it should fail.

The Bank of England website contains the following phrase, “The reason money works when you pay for things is because people trust in its value.”
This week, the same week that Facebook announced Libra, John Gerzema, CEO of the Harris Poll told an audience at Cannes that Facebook’s ratings on “trust and respect” plummeted 43 percentage points in the past year. He said, “It’s the biggest fall for a brand in the 20 years of our data.”
I’m sure I don’t have to list the many reasons that have contributed to this erosion of trust. Will Platt-Higgins, Vice President-Global Account Partnerships, recently said Facebook is making progress catching and removing bad content (Isis and al-Qaeda posts and ‘hate posts’) while admitting, “Sure it’s not perfect… We’re never going to be able to promise zero incidents at our scale.”
A revealing statement, while the big banking crisis introduced the concept of too-big-to-fail, Facebook now embodies the concept of too-big-to-succeed. Not the ideal brand platform on which to launch a new global currency.

“We realize people don’t want their social data and financial data commingled,” David Marcus said at the launch of Libra. Marcus is the head of Calibra, the Facebook subsidiary that will focus on financial services and Libra. He also said, “The reality is we’ll have plenty of wallets that will compete with us and many of them will not be in social, and if we want to successfully win people’s trust, we have to make sure the data will be separated.”
So, someone in Facebook understands that this endeavour requires trust to be successful. The problem is Facebook has destroyed the trust they had and I refuse to believe that most people will trust them to be responsible with the spending data they will obtain have through Libra. Zuckerberg is jealous of the WeChat model that sells ads that handle instant purchases and manage the financial transaction of the sale resulting from the ad. This is what, ultimately, Libra will allow Facebook to do. To say they won’t is disingenuous. To believe they won’t is naive.
We know that there are many big brands who have stated they will be part of Libra, it seems obvious others will follow. We have been told that there will be financial incentives for users to choose Libra as their choice of payment. Maybe it is inevitable that the size of the players involved will make the launch to consumers a success, provided they all invest in incentives to drive consumer adoption. You can’t buy trust but you can pay people to try something.

Ultimately though, the customer probably will not decide the fate of Libra. Politics and global economics will be the hardest test. The Libra’s value will be tied to a basket of bank deposits and short-term government securities. These, of course, are in national currencies like the dollar, pound, euro, Swiss franc and yen. The composition of the basket of assets can change, when necessary, to offset major price fluctuations in any one foreign currency so that the value of a Libra stays consistent. The question is, consistent with what? This an economic policy question, one that has political implications. It also has social implications for those who could find themselves on the wrong end of currency fluctuation. This is where I predict many bad things happening for Libra. We have witnessed the weaponization of trade. Is it plausible that a global company with 2.38 billion monthly active users can launch a global currency without a political and economic reaction? I doubt it and I hope not.

If Libra is a success, the amount of money in the corresponding basket of investments could be so huge that decisions to buy or sell would be immensely influential on markets. Facebook already has significant power of persuasion over almost a third of the global population. With Libra, Facebook could potentially increase its influence with significant global economic power.
It is true that Libra will be nominally independent of Facebook, being governed by a Swiss association, controlled by a consortium in which Facebook has a 1% vote. In reality, Libra has been presented as a Facebook product and it seems plausible that they will retain control, after all, they are the ones who bring to the table billions of users and billions of potential transactions.
I am curious to see how the US, Cina, the EU, Russia, Japan and others react. How, for example, will transactions in Libra be taxed by governments? How will the exchange of currency be regulated? Will the use of Libra even be permitted in certain countries?

Then there is one more issue that could derail Libra, technology. The Libra blockchain is of a kind known as “permissioned”. The problem with this kind of structure is it’s more vulnerable to attacks because it’s not truly decentralized. So why use it? Because Facebook couldn’t find a better system that can securely handle the number of transactions they envisage Libra will need to. It’s not an ideal solution, it’s the only one that might work at such a massive scale (the too-big-to-succeed dilemma).
Also, Facebook is offering an open Libra platform with a new programming language called “Move” for implementing custom transaction logic and “smart contracts” on the Libra blockchain. If you don’t know what that means, a crude but effective translation is that potentially we could have a Cambridge Analytica scandal all over again - this time with digital cash and not data being siphoned off. The Facebook users that Zuckerberg once famously called ‘dumbfucks’ might actually get fucked and if they do, this time, Facebook will get fucked too.

I hope Libra is actively ignored and avoided by a vast majority of people, but I doubt it - the digital carrots offered by Facebook and partners will be too enticing. I hope that Libra is pro-actively regulated and taxed by governments, this, I believe, is much more likely. Ultimately, I think Libra will succumb to hacking and fraud and it will be another serious blow to Facebook’s already tarnished reputation. However, if against my predictions, Libra is a success and becomes a reliable and respected global currency then it may just become the thing that restores trust in the Facebook brand.