Chris Hughes, one of the original five Harvard friends and roommates who co-founded Facebook, has weighed in on the controversial Libra cryptocurrency debate with a scathing critique on corporate ethics.
In a commentary article in Friday's Financial Times Hughes admits he is a cryptocurrency sceptic and that he – like many central bankers around the world – believes that the current crypto-assets on offer represent no threat to financial stability because trading volumes are low and prices are so unstable they offer no competition to fiat currencies as a store of value.
Libra is different, he says.
If things go according to plan, some of the world’s largest corporations will oversee this new currency.
If even modestly successful, Libra would hand over much of the control of monetary policy from central banks to these private companies, which also include Visa, Uber, and Vodafone. If global regulators don’t act now, it could very soon be too late.
Administrative decisions about the cryptocurrency will be made by Switzerland-based Libra Association – Facebook and its corporate partners. And while Facebook has “smartly” limited itself to a single vote on the association to avoid claims that one company may be building up dangerous powers, it doesn’t make the prospect of Libra any less frightening, Hughes says.
This currency would insert a powerful new corporate layer of monetary control between central banks and individuals. Inevitably, these companies will put their private interests — profits and influence — ahead of public ones.
This means that corporate entities could become complicit in dirupting financial stabilty in nation states.
Imagine this scenario, says Hughes: If people in countries where inflation is high trade out of their local currencies and into Libra, they could threaten the ability of those countries to manage their money supply and their abilty to impose capital controls, exacerbating their problems.
In other words, Libra will disrupt and weaken nation states by enabling people to move out of unstable local currencies and into a currency denominated in dollars and euros and managed by corporations.
For a man whose mantra in Facebook’s early days was “move fast and break things” – Hughes is adamant that such a notion is not appropriate for the global monetary system.
The global monetary system, after centuries of instability, is now managed – in the large part – successfully by the emergence of a network of central banks.
[Their] power to help keep an economy stable is something we should be reinforcing and improving, not endeavouring to demolish.
After summing up much of the rival criticism of Facebook’s Libra project that has emerged this week, Hughes ends the column by warning that government watchdogs have underestimated Facebook’s power in the past by allowing its takeover of rivals Instagram and WhatsApp.
This time the scrutiny by the appropriate government regulators should be nothing short of exhaustive.