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Wednesday, Apr 24, 2024

Facebook's Libra cryptocurrency: A threat to national economies? | Counting the Cost

With the likes of Amazon, Google's parent company Alphabet and Facebook becoming the world's most valuable listed companies, Big Data is quickly becoming the world's most important commodity. Meanwhile, regulators are scrambling to keep up with the changing environment.

The newest tech initiative - and one causing some concern - is Facebook's plan to introduce a new digital currency, Libra.

A cryptocurrency used by the social network's two billion users could effectively create a new world currency, perhaps even rivalling the dollar, yuan or euro.

However, given that Facebook has in the past abused data it has on billions of people, many in policy circles are opposing the cryptocurrency on the grounds that it is also a threat to national economies.

The loss of sovereignty is a huge concern for the likes of France's finance minister who raised concerns about a cryptocurrency with huge amounts of power but no governing rules or obligations. Issues of money laundering and funding of terrorism are also concerns for the US treasury secretary.

Although Facebook claims its influence on the Libra currency will be limited, tapping into the global payments market will make it extremely rich.

"Libra is going to be the first major cryptocurrency ... introduced by one major corporate or enterprise," says Naeem Aslam, chief markets analyst at Think Markets, comparing it to something like Bitcoin, which he says is decentralised and driven by the user community.

"Innovation is always important for our ecosystem. It always helps to make things more efficient, so yes it is of significant importance that we should see these innovative ideas, these new innovative technologies and currencies emerging," he tells Counting the Cost.

"But there shouldn't be a wild wild west when it comes to them. They should adhere to some regulation and make the entire regulatory framework even more better," he adds.

China: Currency manipulator?
There is a new battleground in the intensifying trade war between the world's two largest economies, China and the United States: currency valuation.

After China's government eased control over the yuan, allowing the currency to surpass the 7 per US dollar mark, the US responded by designating China a currency manipulator.

The downside for Chinese consumers is that they will pay more for imports. But with the yuan worth less, Chinese exports become cheaper and are able to compete better in the US and across the world - offsetting the US tariffs imposed on Chinese imports.

"China is trying to say we are not going to be bullied by the US, and a small reminder to the escalation of the trade war and what China can do," says Dan Wang, from the Economist Intelligence Unit. But, she adds that a further escalation is "highly unlikely".

Labelling China a currency manipulator is "more of a political statement" by the US, says Viraj Patel, an FX and global macro strategist with Arkera. But he is concerned that the US is willing to "bend the rules" to make that statement.

"It's more nuanced than just labelling a country of China's size a currency manipulator," he says. "I think the US has to take a step back ... The approach from the US is completely wrong. As soon as you apply tariffs, as soon as you take more of an aggressive stance on China, they become defensive."

Patel says the continuation and escalation of the trade "war" between the two powers could be quite damaging. "At some point, someone has to yield, but there is just no end in sight here," he says.

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