Wilson King, 89 London
The European Union is at its core an economic institution. Originally idealised in the European Coal and Steel Community, the project is defined by its unified policy approaches to issues of economic integration. The euro has acted as a powerful platform for this purpose, binding the economic futures of the continent’s states together towards a shared vision of equitable prosperity. However, the joint forces of transnational neoliberalism and technological transformation are increasingly placing the single currency’s future in flux. Facebook’s Libra—a new private currency in development—poses an existential threat to the future of European economic sovereignty and political integrity.
Libra’s principle purpose is to establish a unified system of global exchange. Instantly transferable for local currency on a global scale, the project is framed as a catalyst for inclusion, allowing those without access to financial institutions to benefit from the profits of globalised capitalism. However, in practice, its platform is more nuanced. Libra operates independently of the conventional arteries of the global economy, circumventing traditional regulatory frameworks to allow for the free movement of financial capital around the world. This design is conducive to reducing friction of financial flows, but transfers power over macroeconomic policy-making from political institutions to corporate board rooms. Unlike Bitcoin, this new asset is also structured with stability in mind, backed one-to-one by a basket of currencies and assets meant to provide its governing body with the funds necessary to cover operating costs. The Libra Association—a body of up to one-hundred private firms, multilateral organisations, and academic institutions—will oversee its implementation and management upon introduction. Though seemingly corroborative to the liberal values of modern Europe, Libra poses a number of major threats to the political integrity and economic stability of the European project. This article will examine these flaws and their implications for the sanctity of the EU and its institutions.
The first of these major challenges relates to the symbolic nature of currency within society. Since the dawn of human civilisation and governance, currency has proved an effective tool for enforcing political unity. Exchange is a facet of human interaction that transcends social barriers of culture, ethnicity or language. Therefore, it is perhaps the nation-state’s most powerful tool in the creation of solidarity across diverse geographic contexts. This sentiment is reflected in the Chartalist school of economic thought in its interpretation of currency as a public good guaranteed by the federal government as an economic right. It is easy to identify this normative notion underpinning the design of the Maastricht Treaty. The desire to forge a new collective identity from patchworks of divergent European societies is reflected in the birth of the euro and its ubiquity across the European continent—from Athens to Amsterdam. Libra challenges to unroot this political unity through its desire to move the epicenter of monetary power in the EU from the European Central Bank to the transnational corporation. Though the EU does not seek to replace statehood, its success is rooted in notions of collective regional identity reminiscent of the nationalist rhetoric that guides the state theory of money. Its shared currency is a powerful symbol of the extent to which the diverse nations of Europe have moved beyond a confrontational past towards a stronger and more integrated future.
These political challenges are not limited to the realm of symbolism. Libra poses tangible, regional security threats to European political systems as well. Although the currency operates independently from Facebook, it is administered through Calibra, a digital wallet owned by the parent company, and all customers are given the option, likely as a default, to link their purchases with Facebook’s already expansive databases. As the recent Cambridge Analytica scandal has illustrated, such quantities of personal information are ideal tools in the targeting of political advertising, particularly among alt-right groups with platforms antithetical to the liberal democratic values of the European project. As Russian interference and resurgent nationalist sentiments reinvigorate euroscepticism on the continent, regulators must look carefully at the ways Libra may exacerbate the already pertinent threat social media poses to the future of democratic processes.
In addition to these threats to the European political system, significant economic concerns exist as well. The first of these lies with Libra’s ability to illegitimate the European Central Bank’s common macroeconomic tools. Conventional policy approaches taken by the ECB during periods of economic expansion aim to tighten the money supply and increase interest rates. These measures are common practice in Keynesian macroeconomics to prevent damaging inflation and regulate the gravity of business cycles. However, unlike gold or other currencies, Libra is highly liquid and pro-cyclical in nature. Its universality of exchange and global nature ensures that any time a local currency is transferred into Libra, illiquid assets are converted into highly liquid ones such that a quasi-expansionary monetary effect takes place. In short, precisely when the ECB seeks to limit the growth of the economy, Libra will propel it forwards with full force. This consequence of increased total liquidity, detailed in the work of economist Robert Alexander Mundell, demonstrates Libra’s ability to enforce its own privatised monetary policy undermining the very stabilisation measures that have defined economic history since the early 20th century. This threat also extends to Libra’s implications for the management of systemic risk. Following the Global Financial Crisis of 2007, regulatory agencies of the EU embraced new approaches to policy-making aimed at mitigating the disastrous effects of cascading failure across financial systems. Enshrined in the reforms of the Basel Committee on Banking Supervision, this new framework of macroprudential policies was designed to fundamentally alter the movement of financial capital within the European continent, mandating the creation of countercyclical capital buffers (i.e. excess reserves) in times of economic expansion. Such efforts are considered essential tools in the prevention of future economic crises. Libra threatens to topple this delicate balance by eliminating the EU’s ability to place monetary firewalls along regional borders. By liberalising the movement of financial capital worldwide outside the domain of capital controls and other regulatory instruments, Libra effectively enforces its own macroprudential policy steeped in the notion that the solution to the faults of capitalism is greater and more far-reaching capitalism.
Globalisation has created a global economic environment where there is no such thing as a localised crisis; therefore, the EU must not allow Libra to prove useless its most effective tools in limiting the spread of financial panic onto the European continent. The prevention of future economic crises should be considered a primary concern for the future of the Pan-European project as stark inequalities and turbulent business cycles following the financial crisis have provided fertile ground for resurgent nationalism and xenophobic rhetoric. Backlash against financial globalisation and the phenomenon of “too big to fail” have stoked movements against fundamental economic pillars of the EU’s liberal democratic agenda: free trade, free movement, and free exchange. Marine Le Pen, Viktor Orbán, and others have taken advantage of this rising trend, using economic turmoil as a proxy for divisive attacks on migrants, billionaires, ethnic minorities and Brussels elites. This full-throated attack on globalism is indicative of wider reactionary patterns against the liberal democratic values core to the European project.
The final economic concern relating to Libra regards the structural integrity of its reserve. Whenever Libra is purchased, the local currency traded is invested into a basket of safe assets and reserve currencies. This serves a dual purpose: tangibly backing the currency to prevent instability and earning interest that can be used to pay the overhead of the Libra Association. The course of economic history shows this to be a viable strategy in the management of such an asset. However, the economy of Europe is not one from the history textbooks. Stagnating demographic changes and weak recovery from the Global Financial Crisis have locked the EU into an economy of low interest rates and low growth that has puzzled policy-makers. With negative interest rates on ten-year government bonds in both Germany and France, investors are effectively required to pay for the right to lend their money. This phenomenon is only exacerbated by the market phenomena Libra contributes to. As its reserve grows, Libra threatens to slowly drain the supply of safe assets from the global economy, further driving down the interest rates it relies upon for its structural integrity. This aspect of Libra’s structure in the context of European economic realities delegitimises the currency’s promise of one-to-one backing and status as a tool of financial empowerment.
Is Libra as a concept redeemable? Though the project has many faults, its ideals are not entirely misguided. Arguably one of the greatest drivers of inequality in the world today is the asymmetric distribution of globalised capitalism. 1.7 billion people—and 37 million Europeans—live without access to bank accounts or traditional financial services. Libra’s platform as a tool of financial inclusion allows for it to close this gap, providing more people the opportunity to benefit from access to capital, savings potential, and capacity for investment. However, a number of policy reforms need to be introduced before Libra can safely be implemented in the European market:
1. Accountability. Elected officials, labour unions, and representatives of the international community should be given statutory seats on the board of the Libra Reserve. Economic policy is an aspect of governance with universal implications; thus, a collaborative approach to decision-making is necessary to ensure that it protects the interests of all people, regardless of financial status.
2. Security. Data sharing between Calibra and Facebook should be allowed on an opt-in rather than an opt-out basis. In other words, if an individual wants their financial transactions to be shared with Facebook, they should actively be required to allow it. Legal loopholes allow for technology conglomerates to mask data mining in long documents of terms and conditions aimed at discouraging educated decision making on the part of the consumer. Thus, Facebook should be disallowed from using Libra as a quasi-independent extension of its regular business dealings. This should mitigate risks to election security, while ensuring the consumer is not misled in its use.
3. Stability. Libra should be required to work with monetary policy institutions such as the ECB to purchase and operate under new frameworks of “deposit insurance” specifically designed for cryptocurrencies. The Libra Association should not be given special privileges as compared to conventional financial institutions simply because of its non-profit nature. This should ensure that users’ assets are insulated from wider financial crises that threaten the sanctity of the Libra Reserve.
4. Risk. National and regional bodies should retain the right to subject Libra to capital controls and other measures aimed at regulating the flows of money across national borders, particularly during times of financial crisis. Libra should be a tool of financial empowerment, not a platform for rampant speculation or regulatory evasion. Elected bodies should ensure that the space in which Libra operates is surveilled and analysed just as conventional financial markets.
Ultimately, the rise of Libra as an alternative to physical currency is indicative of a fundamental shift in the nature of human exchange. In an increasingly digital world, antiquated currencies of the past must be adapted to meet the needs of a frictionless, globalised economy. However, the form that this transformation takes will have profound consequences for the future of Europe and its institutions. Libra in its current form threatens to challenge the normative bonds of the EU and unravel the sovereignty of its policy mechanisms. The EU must make a decision. Will it shape technological change to ensure the inequalities and insecurities of the past are not reinforced? Or will it allow for the rise of a new global currency to dismantle its relevance in an increasingly interconnected world?