Big Tech's foray into financial services has central bankers scrambling. Just a few months ago, Augustín Carstens, the general manager for the Bank for International Settlements (BIS), the so-called central bank for central banks, said his organization saw no value in the potential of central-bank-issued digital currencies. Well, he's apparently had a change of heart, and the entrance of Facebook and other "big techs" into financial services appears to be the reason.
Carstens told the Financial Times that the BIS is supporting the "many" central banks currently developing or researching digital currencies. "And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies," he said.
Many other central bankers have dismissed cryptocurrencies like Bitcoin, which tend to be volatile and whose most popular use has been speculation. But Facebook's proposed digital currency, Libra, will be backed by fiat money and designed to maintain a stable value.That, and Facebook's massive global reach, could help it gain traction. Facebook is also not the only big technology company making a foray into financial services. In its new annual report, the BIS also mentions Alibaba, Amazon, Google, and Tencent. The report warns that "big techs have the potential to become dominant" in this area thanks to network effects.
Carstens has warned that central bank digital currencies would have a "major impact" on the financial system, beginning with the fact that it may force central banks to serve retail customers. Traditionally, central banks hold accounts only for commercial banks.
The potential implications of such a change for the stability of the global financial system aren't entirely clear, and Carstens has questioned (PDF) the value of central banks' venturing into such uncharted territory. If Facebook and big tech companies get their way, however they may have to. At the very least, the BIS concludes in its new report, "comprehensive" public policy is needed to "respond to big techs' entry into financial services so as to benefit from the gains while limiting the risks."
The head of Facebook's blockchain project would like to clear up some "misunderstandings." David Marcus has written a post intended to give "clarity" to the critics of Libra, the blockchain network Facebook is trying to seed.
First, to those who say the system is not really decentralized: "We totally get the point," Marcus wrote in the July 3 post. "But it was important to start with trusted entities that could operate in a regulated environment and with the operational expertise required to ensure the integrity of the network in its foundational stage." He reiterated that "we're committed to gradually transitioning to a permissionless state in the years to come," and added that in the meantime, "I'd argue that one hundred geographically distributed, industry-diverse organizations is quite decentralized." (There are only 28 so far, however.)
According to Marcus, Facebook isn't joking around about its commitment to financial inclusion. "We firmly believe that if Libra is successful, it can be a non-linear step change for billions of people who need it most." Those are big words, and that's an enormous "if."
As for financial regulations, and where Libra sees itself fitting in: "At the core, we believe that a network that helps move more cash transactions—where a lot of illicit activities happen—to a digital network that features regulated on and off ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will be a big opportunity to increase the efficacy of financial crimes monitoring and enforcement." This kind of clarity won't sit well with privacy advocates.
Finally, Marcus took a crack at answering a question we've asked here a few times: What's in it for Facebook? "If Libra is successful, Facebook will first benefit from it by enabling more commerce across its family of apps." Down the road, "if we earn people's trust with the Calibra wallet over time, we will also be in a position to start offering more financial services, and generate more revenue streams for the company." Intriguing, but at the same time that's just another big "if."
Could blockchains help break up the power of big money in US politics? A new startup called Peeps Democracy is building an Ethereum-based platform for raising money for candidates running for federal office. Called We the Peeps, the system will let users stake tokens to start "movements" and hold votes that decide which candidates the movements will support financially. The company's founders believe crowdfunding, combined with blockchain voting and cryptocurrency-based incentives, can make campaign finance more democratic. Check out my new story.
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Loose Change
Fill your pockets with these newsy tidbits.
- Cuba's government says it is exploring the potential use of cryptocurrency to boost its economy amid US sanctions. (Reuters)
- Researchers at the University of Cambridge have developed a new tool that offers a real-time estimate of how much electricity the Bitcoin network is using. (BBC)
+Bitcoin mining may be pumping out as much carbon dioxide per year as Kansas City (TR) - The blockchain platform IBM and Maersk have developed to track shipping data has now signed up 15 ocean carrier lines to participate. (CoinDesk)
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South America's third-largest investment bank will use the Tezos blockchain to issue security tokens. (Decrypt)
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Nobel Prize-winning American economist Joseph Stiglitz has written an op-ed in which he argues that "only a fool would trust Facebook with his or her financial well being." (Project Syndicate)
- Officials at the Bank of Japan fear that Libra coin will pose risks to the financial system while freeloading on its infrastructure. (Nikkei)
- In case you missed it: There's a radical idea hiding inside of Facebook's digital currency proposal. (TR)
