Constructive criticism of the preliminary version of Libra as a fractional reserve device

Abstract

Today, the new payment systems that seem available (Bitcoin and other cryptocurrencies, Facebook’s digital currency project “Libra”, etc.) has made people to realize that currencies could be decentral- ized (and de-monopolized), secret and without regulation of the

government (the vision of Hayek in Denationalization of Money), challenging the prevailing notions over what form money can take, who or what can issue it, and how payments can be settled and recorded (Brainard 2019).

Mark Zuckerberg (CEO of Facebook, Inc.) formally announced on June 18, 2019, the launchment of Libra in the first half of 2020 (Constine 2019), releasing its White Paper (Libra Association 2019a, 2019b). As it is still in a preparatory or preliminary phase, facing new emerging regulatory restrictions around the world (Brummer 2019; Brainard 2019; Nelson 2020), we cannot fully know how exactly it will be implemented, and correspondingly what its true nature will be (a private issuer of money or a mere payment platform?), but we can extract some clues guided by eco- nomic theory.

In order to go a step further at the micro level in the margin- al-subjectivist theoretic approach, we have presented a very simple model for depositary activity which allows us to follow one by one, step by step, the concrete human interactions under- lying the so-called business cycle (Bueso 2017). And we have found at the core of those unsustainable processes the actions of specific people (or organizations) erasing or blurring specific property boundaries on other people’s economic goods (thereby control over property is severed from ownership [Shaffer 2009: 167-68, in chapter 6 “Control as Ownership”], for his own, or a third party, benefit), while covertly mutualizing or externaliz- ing the risk or cost entailed. Then such processes appear at the aggregate or macro level as an increase in the money supply, leading to a lower interest rate and unsustainable overinvest- ment [Garrison 2001]).

On such a basis, in order to know the risks and opportunities open before us, we’ll study (following that model) the effects derived from depositaries practicing fractional reserve, we’ll con- sider to what extent Libra will represent such a phenomenon, with its particularities, and we’ll propose also a line for overcoming the externalization of costs entailed (that is, in order to improve the preliminary  project).