Facebook’s Libra

One might well ask: What is Facebook’s business model, and why do so many seem so interested in its new venture? It could be that they want a cut of the rents accruing to the platforms through which transactions are processed. The fact that they believe that more competition won’t drive down profits to near zero attests to the corporate sector’s confidence in its ability to wield market power – and in its political power to ensure that government won’t intervene to curb these excesses.

The world, even the United States, needs less capital mobility, not more. This means that the most important impacts of Libra to the global economy—assuming that it achieves anywhere near the importance Facebook claims it can achieve—are precisely the impacts that have been least discussed by Facebook, Libra, and its proponents:

Democratizing speculative investment: The widespread use of Libra can sharply reduce transaction costs on international capital flows, including precisely the most speculative, faddish, and destabilizing types of capital flows.

Hayek predicted that normal market forces would apply to the goods we use to facilitate exchange (“currencies”) if only governments would get out of the way. In a free market for money he suggested that major financial institutions would sponsor competing currencies, probably defined by “baskets” of commodities. He speculates on how the market would maintain the value and stability of such currencies, far better than any political system of legal tender. [B]ut … and here is the rub, the Libra is not a naturally limited good, as Bitcoin is, but can be multiplied to infinity. It is not stabilized by reference to a basket of commodities as Hayek recommended. Rather, it will be defined by a changeable basket of fiat currencies!