Alas, policymakers and regulators are starting to talk about Facebook's Libra in terms of banking, currency

I wrote a fairly long piece about Libra about a month ago, and how the project was really aiming to be a bank under the guise of a cryptocurrency. This digital asset would then somehow enable banking for the poor, a seemingly benevolent task. But, looking at the Libra whitepaper, I thought the ambitions were pretty clear: it's a bank with the ability to take in various deposits, and in exchange, issue Libra as a form of tender that could travel easily around the world. All it needs now are money transmission licenses in the countries it wants to operate in. However, this might prove to be a herculean task.

One of the most damning responses, unsurprisingly, came from the most powerful Twitter account in the world: Donald Trump himself:

He managed to lump cryptocurrencies and bitcoin in there, saying they are not money and that their price volatility - because they are based on "thin air" - are an issue. They facilitate unlawful trade and illicit activity, so the commander in chief is 100% against them, "believe me." It's true that cryptocurrencies are not like the "money" we normally use to pay bills, taxes, and facilitate transactions. National currencies have an entirely different structure and foundation behind them when compared to most cryptocurrencies. 

National currencies are issued by private and public companies with a license in-hand from a central bank. These banks are generally tied to our liberal democratic system of governance and law, so they can be reined-in, to some extent, if they are no longer fulfilling the mandate set by lawmakers. With crypto assets, anyone can create them, and because of this, they are terrible currencies and have a number of characteristics that almost immediately frustrate economists. What's more, the low barrier to entry for someone to create a crypto asset makes them ripe for fraud. Many times have I compared the current state of crypto to the 18th century robber, baron-plagued US banking system.

Perhaps for this reason, Steve Mnuchin, Secretary of the US Treasury, former hedge fund manager and Goldman Sachs banker, said that Libra was "indeed a national security issue." When something is declared a national security issue in the US, the response is generally completely blown-out of proportion (remember the "war on terror"?). But in this case, I don't think the threat to the US economy is exaggerated. Mnuchin said that he was seriously concerned with the same things Trump was, and that the Treasury will crack down on illegal virtual currencies.

The real knock-out blow for Libra won't necessarily come from Trump or Mnuchin. After all, they're just politicians who might get booted at the next election. The real problems for Libra and Facebook lie within the banking industry itself. So what do we know about the industry's view?

Well, the US's Federal Reserve and its Chair, Jerome Powell, came out and said last week that it has "serious concerns" about Libra and Facebook's ability to launch it by next year. This is a big blow, because if Facebook needs to get a banking license, the Fed is the issuer who will need to be convinced. The Fed is owned and operated largely in the interest of large private banks in the US, and if they feel a threat to their market share, they'll do everything in their power to halt the project.

The banking lobby in the US is one of the most powerful political forces - if not the largest - that can sway quite a few politicians and senators in Washington D.C. So it's not surprising to see Republicans and Democrats both opposing the project. They have plenty of leverage against Facebook already (data privacy issues, monopolization issues, breach of trust, and so on), so the Senate Banking Committee (happening as of writing) and the House Financial Services Committee (scheduled for July 17th) are likely to reveal just how much the banks oppose Libra.

Already we've heard some of their arguments: the fear of financial disruptions to the US financial system in the event of widespread use of Libra by Facebook's over 2 billion users. Democratic senator Brown said that Facebook "doesn't deserve our trust" after all the scandals around its business model. He said "we'd be crazy to give them a chance to let them experiment with people's bank accounts." The senator is right on the money - pun intended.

It's not just US officials who are speaking out, as I've pointed out before. Facebook is global. Germany's Olaf Scholz, the Minister of Finance, directed regulators to ensure that Libra doesn't pose a threat to financial stability and consumers. Ironically, he said, "the issuance of currency does not belong in the hands of a private company because this is a core element of state sovereignty." I think someone in the minister's office should kindly remind the minister that, currently, 97 percent of money created in our economies is created exactly that way; that is, by private corporations.