Eric Posner: The trouble starts if Facebook’s new currency succeeds
The central way that Libra wants to help the bottom billion is by providing cheap or free money transfers, something the world’s aid groups, treasuries, central banks, and development economists all believe is an urgent goal. Remittances—when one person sends money to a person in another country, stereotypically meaning an immigrant sending money home—are an unheralded but powerful economic force. They total half a trillion dollars a year, with two-thirds of that money heading to the developing world. Already remittances are three times as large as official development aid.
But they are expensive and sometimes difficult to send, limiting their scope. Money going from, say, Toronto to a small town outside Conakry, Guinea, needs to pass through an invisible network of financial institutions, all regulated by any number of national and international bodies. That costs money. According to the World Bank, remittance processors charge a 7 percent margin, on average. Cutting remittance prices by five percentage points would save nearly $20 billion year, meaning $20 billion more for recipients.
Cryptocurrencies, like the one Facebook and its partners are building, could send this number to zero. There would be no series of global banking institutions thirsting for a cut. There would be no need for the sender or recipient to go to a brick-and-mortar bank or Western Union. There would be no need for either side of the transaction to have a bank account, or formal identification either. “No one can be denied access for any reason, whether that is lack of identifying documentation, insufficient of funds or credit, or even outright discrimination,” Jerry Brito, the executive director of Coin Center, a cryptocurrency research and advocacy group, told me. “All one needs to receive and send money is an internet-connected device.”
Why haven’t currencies such as bitcoin already become the preferred way to send money home then? In part because the user experience is often complicated, and in part because of price volatility. What immigrant is going to risk sending $1,000 to her family if it would end up turning into $800 by the time it got there? Libra could solve both those problems, given that its value would be tied to that of a basket of assets (it is a so-called stablecoin) and given that the user experience would be designed by Silicon Valley’s finest engineers.
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But this elegant solution still might not be a workable solution for the world’s poor. For one, recipients would need to figure out how to turn their Facebucks into cash denominated in their local currency—meaning a middleman looking to take a cut would enter the picture. The recipient would not necessarily need to convert her money into quetzales or francs or rupees if local merchants accepted Libra, and creating an “ecosystem” is its self-stated goal. But cash remains the dominant technology used for payments in many developing countries.