Hacker News Reader

Comment by fnoof | Hacker News Reader

From the white paper:

> "Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people."

They do this by issuing coins in exchange for fiat money, which is held by the reserve.

> "Interest on the reserve assets will be used to cover the costs of the system, ensure low transaction fees, pay dividends to investors who provided capital to jumpstart the ecosystem [...]. Users of Libra do not receive a return from the reserve."

Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies.

View on HN

If they could provide any history of being principled in their application of policy, it might be worth it; but as it stands, Facebook just sorta arbitrarily unpersons people on their platform, which gives me the impression that they'd be perfectly willing to debank them as well.

There would be savings for cross border transactions. If governments aren’t going to support banking the poor, then why does it matter who does it?

It could definitely help a lot of unbanked people. But that seems to be a nice benefit rather than the core mission.

Yes, for unbanked people who, according to the Facebook FAQ, set up an account using a state-issued ID and jump through a bunch of other hoops that are the same you would need for a bank account.

Assuming you can buy/sell it with better fees/rates. It's bound to be better than some and worse than others.

And just to be clear, there will be transaction fees for using the platform.

It’s hard for a govt to stop bitcoin from being used for money laundering but when it’s a small number of mega corps validating transactions + the price stability and privacy features I’m wondering how exactly they will stop money launderers or terrorist financiers from using Libra to thwart traditional bank AML triggers?

This is not a bank. It's an asset and a payment network. Banks are organizations that borrow short to lend long. This is a stablecoin backed very closely 1:1 with fiat currency. There is no fractional reserve, and there is no lending.

If it is not fractional reserve, how do they guarantee interest payments for those ponying up the millions today?

You don't need either of those things to be a bank. Check out "narrow banking" for the history, theory, and current attempts at it.

From one survey:

"Prior to the early-twentieth century, US banks tended to be much narrower than they are today. Common modern banking practices, such as maturity transformation and explicit loan commitments, arose only after the creation of the Federal Reserve and the FDIC"

"No financial oversight" isn't quite true. it will absolutely be regulated by fincen, as is any MSB in the US. facebook will remain compliant with BSA/AML laws, since this currency/security will enter that domain

>Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies.

How so? I don't think they have access to your digital wallet, unlike a bank.

It's funded by you depositing fiat currency with them, like a bank. They earn interest on your deposits, like a bank.

You convert your fiat currency into crypto currency. Once the exchange is done, you have no rights to the fiat currency. This is in no way similar to a bank. The bank can use your deposited money, whereas here the currency is always in your digital wallet, and only you can initiate a transaction in and out of it. Do you have any information that contradicts this? I've only skimmed the whitepaper.

> Once the exchange is done, you have no rights to the fiat currency.

This is incorrect. Facebook's tokens given users the right to exchange their tokens back for the backing assets.

>Facebook's tokens given users the right to exchange their tokens back for the backing assets.

Well, yeah, of course you can convert the tokens back, similar to how you can exchange between currencies, but it would also depend on the exchange rate. You would not necessarily get back the same amount you put in.

"It is important to highlight that this means one Libra will not always be able to convert into the same amount of a given local currency (i.e., Libra is not a “peg” to a single currency). Rather, as the value of the underlying assets moves, the value of one Libra in any local currency may fluctuate. "

https://libra.org/en-US/white-paper/#the-libra-currency-and-...

Sure, you won't get back the same USD, but you will always get back the same amount of the underlying assets as you put it. This is the the same situation you would be in if you had a bank account denominated in euros.

Alternatively, you can look at this like an exchange traded fund. In both cases what you are buying are tokens which represent shares of other assets.

And no federal insurance program.

Its not a bug its a feature!

All these years of being a staunch techno libertarian and this what we end up with. I’m embarrassed, I thought it would be different.

Facebook Token won't last. There is too much governmental interest in regulating/destroying it. Only a currency that works regardless of governments and regulations will survive. Something like Bitcoin, Ethereum, ect.

> Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies.

I disagree that this is "conceptually" a bank. Facebook's business model isn't lending out the reserves. If it was, banking regulation would apply.

Also, in a modern bank, reserves are maybe 10%, and you get less than zero percent interest after inflation for that risk exposure.

We've all seen in the past on how well "financial oversight" worked. At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there. Facebook is at least a profitable company in its own right.

> We've all seen in the past on how well "financial oversight" worked

It worked remarkably well - no consumer lost their deposits to a bank failure. The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.

That had nothing to do with oversight and everything to do with the fact that the government can just print the money to save a bank - and it did so. That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences.

Also, you may say this "worked" in the US, but other countries didn't get quite so lucky playing that game.

>That expectation itself caused reckless behavior of the banks - and it still does. People just don't fully grasp the consequences.

What most people don't grasp is just how regulated the financial industry is.

Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? This stuff happens in a capitalist economy. I mean, it's not like it was "the banks" in a vacuum. It was governments, mortgage brokers, builders, house-flippers, your neighbour, speculators...everyone benefited from the wealth effect of cheap money and rising home values. Until they didn't; then it became the banks' fault.

> Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable?

No, what's unacceptable is the government bailout "guarantee" you get from being "too big to fail". That's not "taking a risk", that's not "capitalism", that's gambling with someone else's money.

I will agree though that you can't blame the banks for an environment where they're effectively pushed to lend recklessly, that's the result of monetary policy.

The government doesn't print money to catch failing banks, at least not usually. For standard bank deposits, banks pay a fee to FDIC as a percentage of their assets just like any insurance policy.

Keep in mind, it's to the bank's advantage to remain solvent at all costs. An insolvent bank will be liquidated and shareholders are left empty handed. Between the FDIC insurance and the liquidated assets is how these things are paid out.

> The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.

I like how you're trying to make like the financial crash was no big deal because this 'oversight' worked in this narrow context.

I wonder if you'd claim that the banks lending out too much money didn't have absolutely catastrophic effects on the economy in general and by association, millions of people's livelihoods around the globe.

That sounds like an argument for more regulation, not less. If there were less regulation, all that stuff would have happened and depositors would have lost their money.

I agree. I'm a big fan of heavy regulation, especially for industries that can, and frequently do, ruin millions of lives with their avarice.

What if banks tend to lend out too much money because of the deposit insurance? This could have other, unintended consequences beyond the narrow scope of your comment.

It’s a nice theory, but unsupported by evidence. In the US since the FDIC was set up there have been far fewer bank failures than there were before then. In fact, having that oversight short-circuits the mechanism that makes bank runs happen, since getting your money back is no longer a function of your place in line.

> At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there.

This is so ridiculous that I don't even know how to argue with it.

That's probably because systematic bank failure to you is just a fairly tale and you don't understand the risk exposure you have at an actual bank. Open your history book!

To be clear, I wouldn't prefer to put my money with either. But if push comes to shove, would you prefer to have an account at a failed bank that holds 10% in reserves, or a private company that holds close to 100% of reserves, because it is not a bank?

Before you answer, please imagine for a second that you had a decent amount of money to retire on, not whatever FDIC and the already bankrupt state promises to reimburse you with.

This seems to be a false either-or because FB is probably not holding 100% reserves as actual paper cash in a giant Scrooge McDuck vault underneath their HQ. It's holding them at a bank, so that it can get the interest payments.

Thus, a user faces systemic banking system risks plus all firm/stablecoin-provider risks. That combined risk will almost certainly be strictly larger than the systemic banking system risk you'd face by just depositing funds in a bank account that you directly control.

I'm arguing the principle here, so for that purpose it might as well be a Scrooge McDuck vault.

Otherwise, you do have a point, a systematic bank failure would likely cause issues here as well. However, I highly doubt they'd be storing significant amounts of money as cash deposits in banks for the interest. There's better options, such as short-term treasury bonds.

Right - I believe the whitepaper says it'll be a mix of bank deposits in various currencies plus short-term government securities. Still my point stands: you can have lower systemic risk in a serious crisis by holding t-bills or whatever directly, rather than indirectly via FB or any other stablecoin provider. Plus you'll get the interest payments.

Storing serious amounts of money in any of these stablecoins for any real length of time is economically irrational because by exiting their walled garden, you can obtain a higher return in exchange for reduced risk. Withdrawing is even better than a risk-free reward; it's a risk-reducing reward.

Again, I'm not pitting this against all other options, I'm pitting this against bank deposits specifically and in principle.

My point is that bank deposits aren't as safe as people like to believe they are, at least beyond what is insured.

In a systemic crisis, chances are the government will just print whatever money needs to exist and bonds too will take a hit as a result. Plus, whatever happens in the US will impact the whole world. You can't realistically hedge against this with any currency/bond.

Is it because you trust the banks to keep your money safe? Have a look at what happened in 2013 in Cyprus where they did a bail-in with their customer's money to "save" a bank that was too big to fail.

I am with parent on this one.

What happened in Cyprus in 2013? Private banks in a tax haven had rich people from other countries speculating on foreign markets (US housing, among others), hoping to gain above-market returns by doing so. That speculation went sour, resulting in insolvent banks. Those banks also had regular and smaller deposits from local residents, though. In order to protect those people, Cyprus decided to not absorb the speculative losses of those rich people. Instead, the private speculative losses stayed private, which is essentially what a haircut above €100k did.

Now imagine that same situation, but with Facebook at the helm. Either Facebook is in risk of insolvency, or private speculation with zuckbucks going south. Do you think Facebook will just go bancrupt in order to protect the zuckbuck owners? Or will they more probably recreate Cyprus, but way worse for the zuckbuck holders?

In other words, you agree with the parent on the facts. People lost their money, but presumably "it serves them right" cause they were rich and tried to dodge taxes - which is totally besides the point.

As for this new cryptocurrency, it's designed not to go insolvent, because it is more or less fully backed with actual currency/bonds. It has nothing to do with Facebook's financials.

By contrast, besides insurance for a modest amount, a bank deposit is only "backed" mostly by securities and loans years into the future, most of which can go bad in a crisis.

> In other words, you agree with the parent on the facts. People lost their money, but presumably "it serves them right" cause they were rich and tried to dodge taxes - which is totally besides the point.

People willfully risked risked their capital to target above-average returns. That didn't work out, which, when looked at from a distance, is perfectly fine - other market participants made better decisions, end of story. What isn't perfectly fine is people then trying to socialize their losses afterwards. You can't have a cake and eat it, too.

We're not arguing about the safety and viability of banks. Instead, we're directly comparing the safety and viability of banks vs Facebook. If you think that Facebook comes out on top in that comparison, either you really haven't been paying attention, or we fundamentally disagree about what safety and viability mean.

Do you have any actual arguments?

It will be interesting to see how the well known economy concept of "Optimum currency area" (see Robert Mundell, 1961) would apply in that case of a stable money anchored to a mixture of dollar/euro/yen. If it is like what happened to Euro in the face of a systemic crisis, that should be labor mobility and low wages for low-productivity countries.

Not disagreeing with the sentiment of your comment, but the article does say "Facebook, and its partners—two dozen so-called “validators” that will run the proprietary blockchain network—will govern a reserve of users’ funds, on which they will be able to accrue interest."

The partners accrue interest - not the users.

https://medium.com/@tejas_rd/why-facebooks-libra-could-be-a-...

If it's considered to be a currency by the gov. then regular financial regulations will apply.

Reply on news.ycombinator.com