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An earlier article of ours already talked about and examined Facebook’s new cryptocurrency, the Libra. The article in question established that it’s an ambitious project with the potential to upset the world of global finance. It’s no surprise that people other than ourselves have noticed as well, including Donald Trump and Jerome Powell. Their reception of it has been somewhat mixed.
While The President and the Fed Chair don’t often see eye to eye, they’ve finally found something they agree on. Both of them have expressed concerns about the risks they believe the Libra poses to the stability of the dollar. It’s fair to say that the Libra seems to worry those with a vested interested in maintaining the financial status quo. Powell cited potential money laundering and risk management issues as his primary concerns. Trump meanwhile simply expressed his unwavering support for the USD via tweet.
The fact that The President felt the need to come out and boldly proclaim the dominance of the national currency does suggest that some of those concerns may be justified. Before any further speculation could take off, a bill titled the “Keep Big Tech Out Of Finance Act” was introduced in the House. The limitations proposed in the draft were significantly more radical than initially expected. The assumption based on the Fed’s earlier statements was that they planned on including cryptocurrencies under the same regulatory umbrella as any other fiat currencies. The current plan instead prohibits large platform utilities from acting as financial institutes or forming close partnerships with such institutes. The legal definition for large platform utility in this context includes tech company with a global income of over 25 billion dollars whose core activities revolve around online communication or trade. Companies that fit that description include Google, Facebook, Amazon and Apple, meaning they’re prohibited from releasing their own cryptocurrencies or they’d have to face a one million dollar fine.
The legislature’s attitude towards cryptocurrencies clearly shows that they’re not outright opposed to it as much as they simply don’t have a firm idea of what its role should be. As it stands there are no restrictions on smaller businesses releasing their own cryptocurrencies, which undercuts the case of the bill being an effective anti-money laundering measure.
If the main concern is identifying clients for the sake of controlling illegal money transfers, then wouldn’t the same issue apply to companies with incomes below 25 billion releasing their own currency all the same? Banks and other financial institutes are required to have a certain minimum amount of capital so compared to that it makes little sense to tie the creation of new currencies to an upper limit instead.
The whole concept of the bill seems hasty, which makes it seem like a poorly thought out kneejerk reaction to the possibility of the Libra taking over a significant share of the dollar’s role as an intermediary currency in global trade. It shows that the dollar’s position isn’t quite as unshakable as Washington or the Fed would have us believe. The Libra could even serve as a model for other countries or companies trying to circumvent the USD. The China based Alibaba for example would be more than capable of carrying out such an ambitious project. On the other hand if Facebook with it’s 60 billion dollar income were to split into three separate companies, they’d easily be within the legally prescribed limit. That’s of course without even mentioning the possibility of them relocating their headquarters to another country with more lenient regulations. Of the company’s two billion users worldwide, approximately 190 million are located in the US and 300 million in India, making the latter potential target for relocation, if they ever entertained the idea. While doing so would be a risky move that would without a doubt attract threats of sanctions, restricting a company that 190 million US citizens rely on almost every day certainly wouldn’t be popular among the general public.
Tensions between the US government and big tech may just be beginning and neither party seems willing to back down.