Waiting for Libra

A month after announcing that it will launch a new cryptocurrency, Facebook is reporting strong second-quarter earnings and a slight increase in its active monthly user base, to 2.7 billion people. But is Facebook really ready for the global currency business – and is the global financial system ready for Facebook?

In this Big Picture, Nobel laureate economist Joseph E. Stiglitz suggests that Facebook’s repeated failures to respect user privacy should disqualify it from a foray into finance and banking. Cornell’s Kaushik Basu worries that a major private currency could severely weaken central banks’ ability to conduct monetary policy. Moreover, Bruegel’s Elina Ribakova and Anne-Marie Slaughter of New America point out that Libra represents one of several emerging projects that would diminish US control of the global financial system.

Meanwhile, Rutgers’s Roberto Chang and Andres Velasco of the LSE see in Facebook’s designs all the hallmarks of a standard “currency board,” an approach that has repeatedly failed to maintain monetary stability. Sounding a similar note, Stephen Grenville of the Lowy Institute argues that insofar as Libra would allow for frictionless cross-border transactions, it could be a disaster for countries at risk of capital flight. Likewise, Katharina Pistor of Columbia Law School warns that Libra itself could be vulnerable to a bank-run-like meltdown, requiring a bailout larger than any government could provide.

Finally, Princeton’s Harold James plays devil’s advocate, arguing that a truly universal currency could eliminate a longstanding source of conflict between countries.