Facebook has a new strategy to persuade U.S. lawmakers to embrace their plan to launch a digital currency: appealing to their nationalism.
Regulators should see Libra as an instrument of American geopolitical power, argued CEO Mark Zuckerberg several times at the House Financial Services Committee’s six-hour hearing on Wednesday.
The prospective currency has been referred to as a threat to the dominance of the US over the global financial system. Because the dollar is the most common reserve currency in the world, other nations need access to it to trade with each other, and a great deal of global trade flows through US banks. That means the country’s government has a unique power over other states and international organizations.
Congresswoman Maxine Waters of California, chair of the Committee on Financial Services, said she was concerned that the dollar would “rival” Libra if it were allowed to launch. California’s Congressman Brad Sherman, also a committee member, was perhaps the most outspoken critic. He argued that Libra has the ability to “transfer power from the U.S. government to sanctions and tax evaders, terrorists, and drug dealers while weakening the value of the U.S. dollar as the reserve and commercial currency.”
Zuckerberg said the opposite was true in his opening testimony on Wednesday. Libra will be backed by a reserve consisting of several sovereign currencies, as currently envisaged. But as the fund would “mostly” be dollars, Zuckerberg said, it should be seen by regulators as an opportunity to “expand the financial leadership of America as well as our democratic values and regulation around the world.”
He also referenced one of the real rivals of America. China “moves quickly” to release a digital version of its currency “in the months ahead,” Zuckerberg said, adding that it plans to “sell” its currency worldwide.
But while Chinese officials have previously suggested that the digital renminbi is “near,” they have said “no timetable” for its launch more recently.
That doesn’t say that he’s right with the aspirations of China. Some foreign policy analysts believe that China can encourage countries to adopt its currency as part of its Belt and Road Initiative, a global trade infrastructure development strategy.”If America does not innovate, there is no guarantee of our financial leadership,” said Zuckerberg at the hearing.
Why should a private entity be trusted in creating a global currency, even if he is right? The potential risks raised by the widespread adoption of something like what Facebook said it envisaged in Libra are not fully understood as a new report from the Group of Seven highlights.
Ultimately, many people argue that the state should be responsible for issuing and managing currency. Can we see virtual dollars being released by the Federal Reserve to compete with China? The bank’s representatives have said, at least for now, that’s not in the cards. But this scene is rapidly changing. Patrick Harker, president of the Philadelphia Fed, said earlier this month it is “inevitable” that central banks including the Fed will eventually issue digital currencies. Still, he said, “I don’t think we should be the first mover as a nation to do this.”
Source: MIT TechReview
