A comment by Norbert Häring.
Facebooks project of an international currency called Libra seems to have stalled. Important supporters like Mastercard, Visa and Paypal have dropped out. But one should not give in to the illusion that this is the beginning of the end of the project. Geostrategically, it is far too important for the USA. In a two part article I will first analyze who the founding members are who joined the Libra Association as founding members on October 15th, what the prominent jumps mean and what Libra’s ultimate goal is.
What is Libra?
In my book “Schönes neues Geld” I subtitle a warning against a new totalitarian world currency. That’s why I’m of course following the Facebook plans for a new currency particularly closely. It’s definitely a project in this direction.
The Libra payment system is to be administered by a Libra Association in Geneva. According to the Association’s White Paper, Libra can be imagined as a centrally managed Bitcoin system. Transactions are written into a publicly accessible blockchain. Unlike Bitcoin, not every participant of the system can verify transactions, but only authorized members of the Libra Association. It is therefore a centralised blockchain, not a decentralised one like Bitcoin’s. The clou is the binding to a currency basket. It is intended to reduce problematic fluctuations in value, such as Bitcoin’s, to a minimum. When someone buys a new Libra coin, the Libra Association invests the purchase price in bank deposits or secure government bonds in the basket currencies. In this way it ensures that there is enough money to repay all Libra users the fixed equivalent value.
Why did Visa, Mastercard and Paypal opt out?
When 21 founding members sealed their membership in the Libra Association on October 15, three of the most prominent provisional founding members, Visa, Mastercard and Paypal, were no longer present. They had withdrawn because of strong pressure on them. The three are highly profitable, multinationally dominant payment processors. As such, they depend on good relations with regulators around the world. They were made aware of the possibility that, as co-responsible for Libra, they could also get into trouble with regulators with their own activities if the project, true to the Facebook motto “Move fast and break things”, were to turn the international regulatory scene against them.
In any case, the U.S. government is increasingly having to pull out the crowbar to discourage governments from legislation that would force Visa and Mastercard to store payment traffic data in that country, rather than in the United States. This would severely disrupt the access of government agencies and intelligence services to global payment traffic data. With the threat of withdrawing trade benefits, Indonesia has recently been forced to exempt credit card providers from a new rule that requires this. In India this was not the case. As a result, India lost trade advantages. However, there is no evidence of a causal link. Vietnam is also wrestling with data protection requirements for Visa and Mastercard.
Under these circumstances, it is very understandable that Mastercard and Visa, as well as Paypal and presumably the US government, do not want the companies that are so important for the US dominance in global payment transactions and the US monitoring capacity to come into the line of fire as key drivers of the Libra project. This is not necessarily opposed by the fact that one is working confidently together with Libra in the background.
Why is there so much resistance to Libra?
A stable currency operated by a consortium of large multinationals with a huge customer base represents serious competition for national currencies, especially for smaller countries. But the governments and central banks of the larger countries are also afraid of being partially deprived of their monetary policy control options if a substantial part of the payment traffic runs through a currency that they do not control. A currency of one’s own is an essential component of national sovereignty. As one can see particularly well, since US President Donald Trump has been wielding the sword of financial sanctions relentlessly and almost against everyone, the control of foreign payment transactions, as the USA can exercise over the dollar, is a very strong instrument of power.
Who controls Libra?
The 21 founding members of the Association come predominantly from the USA. This is remarkable, as the Association says it is very interested in regional diversity and has expressions of interest from over 180 companies and institutions that meet the requirements of size and multinational engagement. Fifteen of the founding members are from the US, three from the Five Eyes states of Canada and the UK, who work with the US intelligence services to monitor the world. There is also one company each from France, the Netherlands and Sweden.
A very strong focus is on Silicon Valley, with several venture capital companies, blockchain companies and the mobility services Uber and Lyft, as well as Facebook, of course.
From the telecom sector, Vodafone from the UK, which dominates the mobile payment market with its subsidiary Safaricom in Kenya and several other African countries via the M-Pesa service, and from France, Iliad, owned by the venture capitalist billionaire and co-owner of the leading newspaper Le Monde, Xavier Niel, an important supporter of President Emanuel Macron.
In addition, there are a few nonprofit companies and university institutes from the United States and Canada.
Larry Summers, the former US Secretary of the Treasury, grand seigneur of the US-centered world financial system, is represented by at least two founding members, both of whom are allowed to send one member to the board of the Libra Association. He is a member of the three-member Advisory Board of Xapo Holdings, a provider of crypto wallets, and since 2011 Special Advisor of Andreessen Horowitz, one of the leading venture capitalists in the tech industry. Summers founded the G20 group of leading economies, originally as a meeting of finance ministers and central bank governors. When the global financial crisis emanating from the US subprime market threatened to weaken the world’s connection to the dollar-based world financial system, he raised the G20 to the level of heads of government and founded the G20 Global Partnership for Financial Inclusion, which works closely with, among others, the Better Than Cash Alliance. Paypal chief Dan Schulman defined financial inclusion 2015 as “a buzzword that means getting people into the system”.
Visa, the credit card company that doesn’t want to be officially involved, is an investor in the crypto start-up Anchorage, and the non-profit microcredit intermediary Kiva, as well as the largest donor to Women’s World Banking, an organization designed to advance financial inclusion. All three are members of the Libra Association, Kiva is even on its board. In addition, Visa founder Dee Hock, along with Summers, is on the Xapo Advisory Board. Visa is therefore four times indirectly involved in the Libra project, twice (indirectly) through board members.
Bill Gates, who through his foundation is one of the key drivers of the financial inclusion agenda, is one of Women’s World Banking’s key donors. Gates’ foundation is a key member of the Better Than Cash Alliance and founder of the Alliance for Financial Inclusion, as well as a member of CGAP, the implementation partner of the G20 Financial Inclusion Alliance. Gates stated in 2015 at a Financial Inclusion Forum in Washington that the US government must strive to ensure that all financial transactions pass through a system in which it can monitor and, if necessary, block all transactions.
Citibank, as another leading member of the Better Than Cash Alliance and associated anti-cash groups, is indirectly represented through former CEO John Reed as advisor to Xapo and as a major donor to Women’s World Banking.
The who’s who of the US financial industry is indirectly involved in the Libra project through the various venture capitalists.
The association is headed by Bertrand Perez, a former high-ranking Paypal manager.
Josh Kushner, owner of Thrive Capital, a founding member of the Libra Association, is also an interesting addition. He is the brother of Jared Kushner, son-in-law and advisor to Donald Trump.
What does this mean for Libra’s political prospects of success?
Larry Summers, Bill Gates, Visa, Citi, and several other individuals and institutions involved in the project, in close cooperation with the US State Department and the US-dominated World Bank, are key players in the Financial Inclusion Project, which aims to make the world increasingly dependent on the US-dominated and supervised (digital) financial system. Much of the public criticism from US agencies is certainly show, others may come from politicians and regulators who are not involved in this geostrategic project. But there should be no big doubt that this project is being driven and supported by influential parties.
What will the second part be about?
The governments, which are to be further deprived of power by Libra, will not accept this without resistance. But the ability and will to resist is very unevenly distributed. Europe, where particularly significant resistance is foreseeable, is not the focus of Libra, as I will explain in Part 2 of this article. Because Europe is not a controversial territory in financial and geostrategic terms.
The article first appeared on 15.10.2019 on the blog of Norbert Häring.
Thanks to the author for the right to publish.
Picture reference: K.unshu / Shutterstock
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