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When corporates adopt anarchist technology
Cryptocurrencies inspire a kind of quasi-religious fervour among their advocates. For true crypto-anarchists the invention of Bitcoin in 2008 paved the way to a world without central authorities and rent-seeking intermediaries.
It wasn’t long before those rent-seeking intermediaries of the financial world mounted an attempt to co-opt the radical new technology for themselves. It became trendy for executives to say that it wasn’t about Bitcoin, but the underlying technology: the blockchain.
Frankenstein’s monsters in the form of private, permissioned distributed ledgers were proposed and piloted as the answer to inefficiencies in every ecosystem involving more than one party.
‘Fear of Missing out on Blockchain’ (FOMOOOB) spread throughout the financial services industry, even enthralling the arch enemies of the Bitcoin cognoscenti – the central banks themselves.
Despite the expenditure of hundreds of millions of dollars, private blockchains have not yet transformed the world of commerce or finance.
But this is set to change. And with it, the financial system as we know it.
From Monopoly Money to Monopolist Money
Large centralised intermediaries are exploring distributed ledger technology (DLT) in an attempt to overturn the established monetary world order. Their strategies centre on how cryptographic ‘stablecoins’ will replace ‘fiat’ currencies operated by national governments.
Stablecoins are cryptographic tokens that trade on crypto exchanges. They are designed to exhibit some form of ‘stability’ such as: pegging the token to a single currency. Stablecoins bring stability to what has previously been highly volatile cryptocurrency market, offering a genuine alternative to fiat currencies.
Even with the solidity now offered by stablecoins, no one has yet hit the ultimate jackpot. The big, ultimate prize being the world’s first cryptocurrency that becomes a true global means of exchange, unit of account and store of value.
The creator of such an instrument would become the equivalent of a private central bank and have
potentially unlimited power over their own digital money printing presses.
It’s no surprise that the big tech players are eyeing this prize, based on the platform economics that have positioned them as ‘winner takes all’ players in their own digital realms – whether it’s Facebook’s domination of social media or Amazon’s domination of retail. With their unrivalled reach, access to hundreds of millions of customers, insights into the most intimate of data about those customers and almost zero cost of acquisition, the big tech players are exploring how DLT can conquer the world of money.
The emergence of private central banks and private global currencies potentially upends the
established monetary order and the role of the state. There will be many skirmishes as private
enterprises fight it out to control global digital currencies, but the first one is political and takes aim at the issue of sovereignty.
A government’s monopoly over money may seem arbitrary but it is a fundamental part of the social contract. For thousands of years the established power of the day has held the right to decide what money is.
Big tech players want to take control of money and make it an intrinsic feature of their platforms. To that end we can say that ’the money is in the money’, as we can see in the different valuations that the market gives to eBay when compared to a business such as PayPal.
If digital platforms take over the world and they incorporate their own forms of private money issued by their own private central banks, then a key instrument of national power is challenged.
Libra is the most prominent evidence that big tech players want to take control of money. Make no mistake – Libra is a direct challenge to governments across the globe who have largely decided what money is. Naturally, it is also disruptive to regulated financial markets.
Governments are not staying quiet in the wake of this challenge. In recent weeks we’ve seen a backlash from global regulators in response to this challenge.
U.S. Congresswoman Maxine Waters, who also heads the House Financial Services Committee, recently met with Switzerland’s financial regulators to discuss Libra. Off the back of this meeting, Waters said that she has doubts over “allowing a large tech company to create a privately controlled, alternative global currency.”
Shortly afterwards, the French finance minister, Bruno Le Maire, said plans for Libra could not move ahead until concerns over consumer risk, and governments’ monetary sovereignty were addressed. Le Maire left no doubt over his views: “I want to be absolutely clear: in these conditions, we cannot authorise the development of Libra on European soil.”
We are now at a fork in the road as to where the future of money will take us.
Big tech players already dominate the global economy, touching hundreds of millions of consumers and businesses every day. Yet, they now seek to consolidate this grip by incorporating their own forms of private money into their existing networks. This will allow them to act as if they are countries in their own right.
Not only is this a direct challenge to the sovereign rights of nations to decide what money is, it may also be highly disruptive to regulated financial markets.
Without a coordinated response, at the very least from Group of Seven (G7) countries, the U.S. and other nations may individually struggle to stem the tide of Libra and its risk to financial markets. This could even threaten the U.S. dollar’s position as the global reserve currency.
In response, France, which holds the G7presidency, will create a ‘stablecoin’ taskforce. Speaking in response to Libra, Benoît Cœuré of the European Central Bank said stablecoins could introduce risks “related to public policy priorities including, in particular, anti-money laundering and countering the financing of terrorism, as well as consumer and data protection, cyber resilience, fair competition and tax compliance”.
Interestingly the taskforce will also explore Central Bank-backed digital currencies as the advent. Libra forces regulators and central banks around the world to accelerate their own stablecoin plans.
With both Calibra – the wallet that enables Facebook Libra – and governments around the world racing to build a global financial system and network based on stablecoins, the race to control money has well and truly commenced.
Regardless of who wins, big tech and governments seem convinced that the future of money lies with stablecoins and digital currencies. The wheels are now in motion for something that will shift the balance of power over monetary control for the generations to come.
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