[ad_1]
The cryptocurrency proposed by Facebook, the Libra, would facilitate the movement of hot money. Speculators are always looking for the next big thing. One of the most painful side-effects of the unconventional monetary policy of the last 10 years has been the tendency of investors looking for returns in a low-rate world to pile up in the last bubble – which it's acts in emerging markets, commodities or high-yield bonds. This is why countries like Brazil and Thailand, for example, have sometimes used capital controls to stabilize their financial systems, a decision that even the IMF now considers legitimate.
Facebook wants to do exactly the opposite – grease the wheels of global capital flows with a digital coin that works outside of the existing central bank system. Its stated purpose is to facilitate the "global, open, instant" movement of money across borders with a Swiss-based, privately managed cryptocurrency that will in some way engender "trust" and "inclusion" worldwide.
Let's leave aside, for the moment, the list of oxymorons contained in Facebook's statement, as well as the technical and regulatory hurdles it has not yet crossed to pbad the Libra. (It should also be noted that the US Federal Trade Commission recently fined Facebook $ 5 billion.) A more fundamental question is whether easier cross-border financial flows are what the world has really need.
Facebook is positioning Libra as an encrypted version of community loans, which will help people around the world to more easily pay for a variety of things in the real economy (coffee, clothes, concert work invoices, etc.). It is actually more likely to aggravate the existing problems within the financial system, that is, the gap between finance and the real economy.
As recently stated Michael Pettis, a professor at Peking University, in a blog about whether Libra could further facilitate cross-border speculation: "Economies will go where [they are] to be able to circulate or to the places where the penalties are less heavy than towards the most productive places ". It is certainly true. Much academic research in recent years has shown that the role of the financial system in many advanced economies is no longer to channel money into new and productive investment, but to buy and sell existing badets through complex securitization. .
Professor Pettis notes that we have been living in a world where the main driver of cross-border payments is the current account needs of individuals and even businesses. Rather, it is the excesses of global economies that seek the best returns they can find anywhere they are. "There is no reason," he writes, "to badume that this dynamic will not be exacerbated by the use of Libra."
A number of experts, including Nobel laureate Joseph Stiglitz and banking consultant Bert Ely, have already worried about how Libra could be used to facilitate money laundering, crime and tax evasion. But I wonder if this could have even broader implications for financial stability.
Facebook boasts the benefits of hedging and stability of an instrument "backed by a collection of low-volatility badets, such as bank deposits and short-term government securities denominated in foreign currencies and sourced stable and well-known central banks ".
Some observers have even begun to talk about Libra as a kind of digital gold. But he has none of the restrictions imposed by gold on the number of transactions that can take place. In fact, as Professor Pettis points out, far from controlling rising prices, Libra could exacerbate bubbles by facilitating the conversion of illiquid small-currency badets into badets in a large and potentially very liquid cryptocurrency – a currency that can gain ground bubbles but global too.
The result? A coin perfectly positioned to become a vehicle for money to flow hot money, regardless of the market, is the flavor of the month (or millisecond). It is easy to imagine a world in which Libra is less used to try to buy a coffee in Spain without exchange fees, and more in the search for yield at the end of an economic cycle, via capital accounts completely free of any sort of barrier of protection. And you do not need $ 500,000 to participate in such speculation, but only $ 500 or even $ 5.
Libertarians who have imagined Libya see it as a beneficial decentralized force in a world where large, centralized institutions have failed. But this attitude of "doing things fast and breaking things" is, of course, one of the reasons why Facebook encounters the problems that arise.
In the meantime, one of the main problems of globalization is that capital has been able to move more freely than goods or people. I am afraid that Libya, at least as it is now conceived, aggravates this problem and makes it more difficult for central banks to provide financial stability at crucial moments.
It may well be that now the world needs less capital mobility, not more. Libra threatens to take us in the wrong direction at the wrong time.
Source link
