Zuckerberg plays China card over cryptocurrency
Facebook could wash its hands of its own cryptocurrency project and drop out of its governing body if it cannot meet the concerns of US regulators, Mark Zuckerberg has claimed.
Testifying before the US Congress, the 35-year-old chief executive sought to reassure politicians that the new digital coin, Libra, will fully comply with US laws, saying that his company would not stay on board unless it does.
His answer raised the surprising possibility that the Libra Association, the Geneva-based body set up by Facebook to manage the new currency, would carry on without the company that has so far been both its driving force and its public face.
The Libra Association is theoretically independent, but four out of five of its newly elected board members have ties to Facebook. It has already lost seven of its 28 original members, including major payment providers Visa and Mastercard, which could have provided a counterweight to the social media giant.
Zuckerberg’s claim was made during a testy hearing of the House of Representatives’ financial services committee, in which politicians probed how Libra Association would prevent fraud and crime, as well as admonishing him for the scandals he has presided over since his last appearance before Congress in 2018.
But on one subject there was broad agreement: China. Zuckerberg argued that the US must embrace Libra in order to retain its financial supremacy and its technological leadership. Blocking Libra could open the door to a digital currency created by China becoming the dominant global standard, he warned.
‘‘China is moving quickly to launch a similar idea in the coming months,’’ Zuckerberg said. ‘‘I believe that [Libra] will extend America’s financial leadership around the world, as well as our democratic values. But if America doesn’t innovate, our financial leadership is not guaranteed . . . if a
Chinese financial system becomes the standard in more countries, it would be very difficult if not impossible for us to impose our sanctions.’’ This is Zuckerberg’s most powerful argument in favour of Libra. It met with broad support from Republicans in the chamber – and there is good reason to think that it will ultimately prove the decisive factor in Libra’s favour.
‘‘The China threat is one that is strategically well chosen,’’ said Katharina Pistor, director of the Centre on Global Legal Transformation at Columbia Law School. ‘‘China already has expansive and well-functioning digital currencies . . . [politicians] will think very hard about what they need to do to make sure that some American companies are in the game.’’
Admittedly, China is a drum that Facebook beats quite often these days. Just four years after he gave a speech in Mandarin to students in Beijing, part of a grand overture towards the communist state, Zuckerberg now talks stridently of its values being incompatible with Facebook’s. His new stance is a pointed dig at Apple, whose iPhone supply chain is deeply embedded on the Chinese mainland, as well as a way to win back Facebook’s moral standing in the increasingly Sinosceptic US capital.
Yet Zuckerberg’s warning has substance too. China’s central bank is close to issuing its own cryptocurrency, which would serve as a natural adjunct to its tech giants’ battle to displace Western firms in developing markets. The area that those companies most excel over America is in mobile payments, which are in high demand across Africa, south-east Asia and South America.
In this battle, Facebook has one devastating weapon: the sheer size of its user base, currently more than 2.3 billion across all its apps. ‘‘If Facebook were able to flip the Libra switch on across WhatsApp, Instagram and Facebook, overnight it would become the biggest retail bank in the world, at least by population,’’ said Gavin Brown, a lecturer in economics and cryptocurrency expert at Manchester Metropolitan University. ‘‘That is something that would take many decades, or even be impossible for rival projects.’’
Nor is China the only threat to the hegemony of the dollar. Devotees of Bitcoin talk of permanently smashing the power of central banks using unbreakable mathematical formulas. Because of its decentralised nature, Bitcoin itself is supremely difficult to stop or censor, although it is fully traceable, making it a qualified boon to criminals and terrorists.
‘‘We see a range of different cryptocurrency projects out there, [some] completely decentralised and deregulated,’’ said Zuckerberg last night. ‘‘What we’re trying to do is build a safe and secure, regulated alternative, which we think that the digital payment space needs. As a big company . . . we’re going to work with the government to build something that gets to the same standard on anti-money laundering.’’
According to Brown, this is a big reason not to reject Libra out of hand. Today, he said, anyone with a computer and a few spare hours can build their own currency. If the US adopts an ‘‘Amish’’ strategy of total rejection, it may ensure that the new dominant standard will be something truly uncontrollable.
‘‘Whenever there’s any kind of technological advancement – the internet, the telephone, microwaves, radio signals, nuclear power, whatever it might be – it’s very unusual for that technology to be put back in the bottle,’’ said Brown.