Failing fast is encouraged in Silicon Valley. So top marks to Libra, the Facebook-backed project for a new digital currency, whose original idea has managed to fail before it had even begun.
Last June, after months of carefully laying plans, Facebook unveiled its proposals for what it then called a “global cryptocurrency”, which the billions of users of its messaging apps could use to send money back and forth.
The project was carefully constructed to deflect any potential criticisms, of which there was no shortage. Knowing that it did not have the reputational capital for governments to trust it with people’s money, Facebook promised that Libra would be governed by a consortium of companies, and based in neutral Switzerland.
Unlike cryptocurrencies such as Bitcoin, which are inherently unstable, Libra would be backed by a group of stable assets such as currencies and government bonds. Facebook believed it would succeed where other attempts to create internet money had failed, and confidently predicted that people would be spending Libra within a year.
But from the beginning, things have unravelled. On the same day Libra was announced, France’s finance minister asked for it to be investigated, and some US politicians demanded Facebook put an immediate halt to development.
It got worse from there. Big hitters in the governing Libra Association, such as Mastercard and Vodafone, left, and Mark Zuckerberg endured an uncomfortable Washington dressing-down. Central bankers feared that a new currency controlled by companies, rather than states, had potentially drastic implications for monetary policy.
If Libra entered widespread use, the reserve of assets used to back it up could become enormous, potentially holding huge sway over demand for fiat currencies. Despite Facebook believing it had taken the appropriate precautions, it turned out to have severely misjudged the mood.
But as all good techies know, failure is merely a pit stop on the way to success. Last week the Libra Association revised its plans, saying it had listened to the concerns and had acted accordingly. The headline difference of “Libra 2.0” is that it will not only create its own coin, an amalgamation of different currencies, but that it will release cryptocurrency versions of the dollar, pound and euro.
While this may sound like an expanded vision, it is the opposite. The original Libra plan imagined one new currency, borderless and independent; the new one imagines most people simply using digital clones of the money they already use. Americans will use Libra dollars, Brits Libra pounds. In other words, Libra has simply become one among an almost infinite choice of digital payments system.
The new Libra is more likely to secure permission from governments and financial supervisors to launch, which it still hopes to do this year. It is also a far less ambitious proposal. One global currency may have been an idea that disturbed monetary policymakers, but at least it was an interesting one.
The climbdown illustrates the major problem with cryptocurrencies in general, not just Facebook’s. They all sit on a line between anarchy and pointlessness. Bitcoin, which is wildly volatile and has become a tool of online crime and terrorism, edges towards the former end. Libra’s original vision sat somewhere in the middle, and has now slid towards pointlessness, with no practical reason why it should be preferable to existing money transfer systems.
Perhaps this is unfair. It is true that there remain millions of people who are not part of the banking system, despite owning smartphones and having internet connections. Facebook, or one of its subsidiaries such as WhatsApp, is the primary way many of these people use the internet, so the company does have the power to bring them into the financial fold.