Facebook could do to banks what it did to newspapers – The Australian Financial Review

Mark Zuckerberg's Congressional testimony makes it clear that he takes inspiration from China, where WeChat serves as a one-stop portal to the greater internet. There, users conduct their banking, shopping, and bill payments without ever leaving the app. The ability to control users' economic interactions comes with the privilege of deciding the medium of exchange. If it follows suit, Facebook may end up looking like another familiar monopolist - our own government, which creates the national currency we use to pay our taxes.

It's no wonder regulators and central banks view the Libra project as a threat to the international monetary system. In a recent report, the G7 Working Group warns that global cryptocurrencies could undermine cross-jurisdictional efforts to combat illicit finance. All international transactions using US dollars currently clear through the New York Federal Reserve, where they can be monitored and stopped if deemed unsavory. Previously, members of the Senate Banking Committee have expressed concern over Facebook's ability to handle economic sanctions on foreign regimes.

Zuckerberg has promised that Calibra, Facebook's payment app, will include robust compliance systems to fulfill regulatory obligations. However, the greater risk is that Calibra will go above and beyond its regulatory duty. Facebook already employs a more restrictive speech code than legally required - the platform blocks various forms of hate speech, harassment, misinformation and inauthentic behavior. Publishers must accept Facebook's opaque Terms of Service or risk not being seen at all. It's one thing to deny politically incorrect figures the ability to share inflammatory content; it's another thing to leave them economically isolated.

In a competitive market, those who disagree with Facebook's terms could simply take their business elsewhere. The Libra Association currently includes twenty-one member companies, after some early members dropped out. If Facebook mimics WeChat in establishing itself as a go-to payment portal, those former members may have no choice but to return to the cartel.

Global regulators are so worried about preserving their own monopoly status that they've forgotten that monopolies have victims. Just look at what Facebook did to publishers. When Facebook emerged as the arbiter of eyeballs, publishers lost control of their audiences and ad revenue, and consumers ended up with a barrage of clickbait. If Facebook disintermediates the banking system, it could take control of the economic relationship between businesses and their customers, with greater restrictions on financial transactions than ever before. It's almost enough to make you wish for a decentralized currency.

Elaine Ou is a Bloomberg Opinion columnist. She is a blockchain engineer at Global Financial Access in San Francisco. Previously she was a lecturer in the electrical and information engineering department at the University of Sydney.

MCT

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Facebook could do to banks what it did to newspapers - The Australian Financial Review