Of course he's concerned. This type of thing could potentially displace USD as global money. Pretty unlikely but the idea of it is reasonably terrifying to the federal reserve.
Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
111–120 of 164 posts
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#112Posted this in an older Libra hatefest but I'll post it again: Cryptocurrency and blockchain technology have opened up permissionless innovation in an industry that has been so choked by regulation that previously only the largest, most well-connected players could get in the door: finance. You can, right this second, create a smart contract that allows extremely sophisticated financial instruments and attract real u…
>The point is that these technologies are permissionless and unstoppable. As long as the internet exists, you can't eliminate such technology and behavior
This is the myth that will apparently never die in the crypto community. Yes, the people with badges and guns and court orders absolutely can prevent crypto from being widely adopted if they want to:
In the case of Libra, regulators like the Federal Reserve can simply say 'no'. Unless the Libra Association hires a private army that can defeat the world's current best in a standing battle, there's not much they can do about it.
In the case of crypto in general, while I agree they probably can't prevent the .1% of the population who are tech savvy enough to manage their own wallets:
1. That's nowhere near enough people to get mass adoption
2. Much more importantly, the Feds can prevent businesses from accepting crypto for payment. If crypto can't be used for payments for legit goods (i.e. not drugs/hitmen), it's useless except as a means of pure financial 'bigger fool' speculation (wait, that's what it is now!) No one who operates a legitimate business is going to risk catching a felony if the US says 'bitcoin is illegal, 3-5 year sentence if you use it', etc. No payments for legit goods = no broader network effect. Instead you simply own the 21st century equivalent of a penny stock.
I'm not militantly anti-crypto, but the community is really naive about how much power regulators & law enforcement really has if they want to exercise it. If crypto becomes a 'thing', it will be another highly regulated finance product offered by Huge Company, like Libra. The libertarian (frankly populist) dream is not in contact with reality
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#113Earlier quoted context omitted.
This is how every bank works.
Except banking is highly regulated and the money not held in reserves is invested with oversight on how much risk is taken (that oversight fails sometimes but generally works). If a tech company can jump in and function as a bank without oversight that is going to hurt banks. History has shown us that unregulated banks, and regulated banks that push the limits or evade regulations fail and cause damage to the entire…
First of all, Facebook isn't doing fractional reserve.
Secondly, banking regulation does nothing to mitigate the risk of fractional reserve banking. Your average bank holds maybe 10% of deposits, the rest is loans way into the future. No such bank can survive a bank run.
What does mitigate the risk (for the average bank customers) is the government insurance for bank deposits. A government can always print the money necessary to bail out a failed bank. What such a bailout could do to a currency is another story. Let's just say we got lucky.
In any event, the government wants the banks to loan out all this money, because that's economic stimulus. You can't have both tight regulations and easy money.
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#114Earlier quoted context omitted.
In virtually all developed nations, the requirement is either zero or single-digit percent.
No there are strict tier 1 and tier 2 capital ratios that banks are required to uphold.
The fractional reserve requirements for cash and equivalent are in the single digits, as I said:
https://en.wikipedia.org/wiki/Reserve_requirement#Required_r...
Tier 1 capital is not cash reserves, it's risk-adjusted assets, which may or may not be made up of assets that are as liquid as cash.
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#115Posted this in an older Libra hatefest but I'll post it again: Cryptocurrency and blockchain technology have opened up permissionless innovation in an industry that has been so choked by regulation that previously only the largest, most well-connected players could get in the door: finance. You can, right this second, create a smart contract that allows extremely sophisticated financial instruments and attract real u…
The problems with cryptocurrencies are precisely their lack of laws.
Laws link the real world (a thing or action) to an intangible concept (a transaction or a contract).
Without a guarantee of that link (ultimately, via force), you're left with joke monopoly money.
And if you leverage the existing system to accomplish that link (e.g. via writing legally valid smart contracts), then you're again beholden to governments.
People don't use government-backed currency because they have to: they use it because it's useful and reliable.
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#116My concern about Libra is that it suggests that Facebook is trying to control things that have normally been the purview of the government. This is concerning in the long run because Facebook is not run democratically. Any institution performing government-like functions should be at least as accountable as the government itself.
I agree with you, but central banks like the Fed are not accountable like the government is
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#117Posted this in an older Libra hatefest but I'll post it again: Cryptocurrency and blockchain technology have opened up permissionless innovation in an industry that has been so choked by regulation that previously only the largest, most well-connected players could get in the door: finance. You can, right this second, create a smart contract that allows extremely sophisticated financial instruments and attract real u…
The problems with cryptocurrencies are precisely their lack of laws. Laws link the real world (a thing or action) to an intangible concept (a transaction or a contract). Without a guarantee of that link (ultimately, via force), you're left with joke monopoly money. And if you leverage the existing system to accomplish that link (e.g. via writing legally valid smart contracts), then you're again beholden to government…
Before cars there were horses, before computers there was graph paper. The benefits of crypto are so clear that outlawing it makes no sense. I can’t explain this to you because you choose not to understand it so it’s not worth arguing.
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#118Earlier quoted context omitted.
They can't be a central bank because they are not a government.
> They can't be a central bank because they are not a government. Isn't the federal reserve in the United States a private corporation that is not part of the government?
No, they are not a private entity in that sense. They president is appointed by the president. They are a (theoretically) independent organism.
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#119Earlier quoted context omitted.
Every bank and credit card is also an unsanctioned mint. It works fine. The actual minting of money has not been a major factor in managing the money supply in a long time. It's all done by setting interest rates.
Insofar as this rhetorical framework is concerned, they're actually sanctioned, not unsanctioned. Banks and credit issuing institutions are heavily regulated and have a variety of criteria that must be met to legally operate in that capacity.
> Banks and credit issuing institutions are heavily regulated and have a variety of criteria that must be met to legally operate in that capacity.
Except the banks and other regulated financial institutions involved in Libra aren’t the entities that will be issuing Libra coin. A separate (I believe non-profit) entity, Libra, is. The financial institutions have “donated” $5 million and will have the ability to appoint a seat on Libra’s board. Do you know which regulator will oversee that entity? Do you know what regulations will apply to that entity? I certainly don’t.
Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal
#120Earlier quoted context omitted.
But without Facebook (or any of the Libra association members that aren't already financial institutions) starting a bank, and then for obvious reasons being forced by law to split that off from their parent company as an independent entity, why would anyone expect banking laws to apply?
Banking and securities laws affect non-banks too. You can't just act like a bank or issue a security without following the regulations. Facebook isn't actually acting like a bank, but if they claim that their tokens are backed by real assets when they aren't, that's just plain fraud .
It seems to me that Facebook has structured Libra coin to avoid banking & securities laws. By bringing in 20 of his closest Wall Street friends Zuckerberg is attempting to rely on prior SEC commentary that BitCoin is sufficiently decentralized to keep the tokens outside of securities regulation.
And even though Libra claims the tokens will be backed by a basket of global currencies they’re still acting like a bank. That basket of currency will fluctuate in value. Libra is basically offering a riskier and unregulated money market account.