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Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

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Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#121

Post by jasonhansel »

50656E6973 wrote: post #116
jasonhansel wrote: post #110

My 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

The Fed is certainly more accountable than Facebook. The Fed chair is appointed by an elected president; Mark Zuckerberg is appointed by various unelected rich people.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#122

Post by nixonpjoshua1 »

50656E6973 wrote: post #116
jasonhansel wrote: post #110

My 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

Not directly accountable but still much more accountable than Facebook is. Even in a non-elected position there is still a duty to the people and greater good rather than fiduciary duty to shareholders.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#123

Post by buboard »

damnyou wrote: post #94
buboard wrote: post #84

Earlier quoted context omitted.

you are welcome, but that would be the "ordinary" claim

I assert with exactly as much evidence as you (zero) that it is the extraordinary claim. Show me a so-called "decentralized" coin that is designed to not just be dominated by a handful of miners. It's a natural consequence of proof of work, isn't it? Large-scale miners will always be able to buy electricity for cheaper than your average person.

some currencies have different consensus protocol, e.g. stellar. others are actively fighting it, e.g. monero. and even in the case of a takeover, forks are possible , ensuring decentralization

it's not just decentralization, it's competing decentralized currencies in a free market.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#124

Post by abecedarius »

bo1024 wrote: post #108
abecedarius wrote: post #99

Earlier quoted context omitted.

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price…

I think the plan for Libra is always to have its value tied to something stable (USD for sake of argument, but more complex in practice). Each libra would be backed by 1 dollar or whatever. (I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)

OK, but we're talking about cases where something goes wrong. What are some somethings?

- Libra screws up and its value is unstable. Pissed-off customers switch to other currencies, at a loss.

- Libra turns out to be a great stable currency while the Fed screws up so badly that everyone scrambles to get out of dollars. It's a giant disaster, but not one I'd describe as "Libra destabilizing the financial system" -- I'd call it them offering a lifeboat -- a well-run firm outcompeting a poor one. (This seems unlikely, and I'd hate to see Facebook become this powerful because I can't stand Facebook. It's just, in this scenario they'd have done a useful thing.)

- Libra is so successful they gain a new effective monopoly, and then they fail or exploit their position.

Is the worry something else? I don't understand money very well, for all that I've read multiple books, took ec in college, etc. There's so much BS around it.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#125

Post by cameldrv »

drexlspivey wrote: post #67
TheRealPomax wrote: post #14

Earlier quoted context omitted.

Yes, and banks are bound by incredibly tight laws, including laws around not being allowed to recirculate all the money you get as part of an exchange operation. If all the Libra association members are willing to be bound by the same laws, then cool: but do you trust Vodafone, or Facebook, or Andreessen Horowitz, to not try to bend the rules so they can make more money?

Banks follow fractional reserve so they have to keep 10-20% of the deposits in cash. Libra and most stablecoins keep 100% reserves so it's even stricter. Libra claims that every coin is backed by fiat currency so investing the deposits is not how they plan to make money off of this.

Libra maintains "100% reserves." How is that money reserved? For a bank, it needs to be either in cash in the vault or on deposit with the Federal Reserve. Either way it's not getting loaned out again. Presumably Libra will be depositing it at (loaning out to) a bank, or putting it in short term bonds, money market, etc. Either way, they're loaning out all of the money, i.e. they have a 0% reserve.

What Facebook is proposing is merely to have assets equal to the deposited funds. For a bank, that is called teetering on the edge of insolvency. If a bank's assets ever dip below its liabilities, it is insolvent and either has to raise equity capital or be wound down by the government. This is why banks have capital requirements, so that they have a buffer against loans going bad.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#126

Post by WheelsAtLarge »

conanbatt wrote: post #88
WheelsAtLarge wrote: post #62

Interesting that Powell does not address the power that FB gets by having its own currency. Having billions of users gives it the power to create its own economy and by extension its own government. If you give it enough time FB will be able to set its own monetary policy and rules. It won't happen today or tomorrow but give it time and it will.

Its an independent currency: if it changes rules in a way users dont accept it would stop being used. Lets not confound the capacity to build a token with the capacity to levy taxes. The latter is the scary one. The former is just playing with casino chips and airline miles.

One of the ways that fiat currencies are accepted by the public is that you can use them to pay taxes so even if no one wants to accept them you can be sure that the issuing government will accept it as payment for taxes and government services. So people are assured that at worst there is a place where it can be used.

Once FB creates services that people want and then FB decides that they will only accept its currency as payment then people will have the confidence to accept it and use it. There is no doubt in my mind that FB will create services since all companies eventually create them as part of their business.

There is nothing new about the general idea. It's happened in the past and it will happen in the future.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#127

Post by viraptor »

gridlockd wrote: post #113
johnrgrace wrote: post #21

Earlier quoted context omitted.

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…

> Facebook isn't doing fractional reserve

I think a better description would be: Facebook says that right now they're not planning to do fractional reserve. There's nothing holding them to this promise. There's also no control that their partners in Libra will keep it.

It may well be the same situation as tether (or worse).

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#128

Post by ethbro »

seibelj wrote: post #117
ethbro wrote: post #115

Earlier quoted context omitted.

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.

None of your words applied to what I said.

You don't have to outlaw cryptocurrency to make it useless: all you have to do is deny its use of existing legal guarantees.

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#129

Post by stephen_g »

benj111 wrote: post #38
gridlockd wrote: post #34

Earlier quoted context omitted.

In virtually all developed nations, the requirement is either zero or single-digit percent.

zero? What happens when someone wants to make a withdrawal?

Banks can borrow reserves from other banks or the lender or last resort. They usually do keep some reserves around for liquidity, but as little as possible because reserves don't make as much return just sitting in an exchange settlement account as they do if they lend them to other banks or buy Government bonds with them.

Fractional reserve in general isn't really a thing in modern banking. The US still does have a reserve requirement but pretty much the rest of the world relies on capital adequacy ratios (some capital is usually stored as reserves in exchange settlement accounts but it doesn't have to be).

Re: Fed Chair Jerome Powell Has ‘Serious Concerns’ with Facebook Libra Proposal

#130

Post by roenxi »

abecedarius wrote: post #99
TheRealPomax wrote: post #6

My main concern about libra is that, by being strongly tied to real currencies, libra issuers (not just facebook, all of them) have effectively assumed the role of unsanctioned mints, with the ability to damage the stability of each currency because libra is not tied to the international exchange system: if you pay facebook, or anyone else, $10 and they convert that into libra, now they have $10 that they will absolu…

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price…

> but the new money is not denominated in dollars, it's in Libra

That would be a problem from the governments perspective. Any theory that starts by assuming normal economic forces forces where money is concerned is risky.

The supply of money is actively managed by governments in response to various things. That ability to exchange serious amounts of money is not usually tampered with but is generally required to flow through systems which a national government controls (usually the US Government) and there are gate-keeping fees to get involved. The ability to make loans or do creative accounting at scale is also locked down with regulations and requirements.

It is an interesting situation because the distortions don't directly generally stop anyone doing anything directly; but the way winners are chosen doesn't function exactly like a theoretical free market. Facebook is unlikely to be selected as a winner if they just jump in feet first; and particularly if they want to expose the monetary system to supply-demand forces that aren't under government control.

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