Every week, dozens of people walk into the Sunshine convenience store in Charlottesville, Virginia, to send money to relatives in other countries. They use a service called MoneyGram, one of the two largest firms (the other being Western Union) that facilitate the conversion of US dollars into the currency of the receiving person, charging between $9.99 and $49.99 (£7.97 and £39.89) for each transaction.
Many of the patrons of Sunshine alert their relatives of these transactions through WhatsApp, the encrypted messaging service owned by Facebook and used by more than 1.5 billion people around the world.
Facebook has long seen these intertwined practices as an opportunity. Now it is moving forward on a bold plan to combine remittances and the communication that makes remittance possible, by deploying its massive scale (2.4 billion users), vast collection of cash ($55.8bn in annual revenue), stable of lawyers and lobbyists, and teams of talented engineers to create the company’s own global electronic currency system.
The new currency, Libra, will be managed by an independent foundation via an encrypted blockchain ledger.But unlike bitcoin, nothing about Libra indicates a dream or desire to displace the role of states or state currencies in our lives. The plan is deeply embedded in the global financial and legal status quo.
If it succeeds, however, Libra could scrape away at the status of the US dollar as the universal “reserve” currency and if it takes even 5% of that global role it could affect the status and power of the American economy.
Only a company as global, wealthy, and politically powerful as Facebook could realistically hope to take over the global remittance market and it could do so by lowering fees to almost nothing. Such a move would not only help migrants and their families, it could wipe out all the competing services, including local banks and informal financial networks.
Libra should not threaten Bank of America or HSBC. It is aimed at serving the “unbanked”, those who have too little wealth to interest a commercial bank. That should frighten those who lead Western Union and concern antitrust and competition regulators around the world.
The rest of us should worry about an even greater concentration of power in the hands of Facebook, a company that has shown its word to be unworthy of our trust. The fact that Facebook chose to establish an independent foundation to run Libra shows that the company understands how soiled its reputation is.
Still, despite the barrage of scandals and embarrassing revelations, the story of Facebook and WhatsApp is one of increasing use and surging revenue. The world may be souring on the company’s leaders, but it is increasingly dependent on the networks. Billions of Facebook and WhatsApp users are not fools. They get value from the services. For many people in diasporas or with family on multiple continents, Facebook and WhatsApp are crucial tools for maintaining relations and relaying crucial information. For refugees around the world, WhatsApp is a lifeline.
This combination of factors creates the core dilemma for critics, reformers and regulators: how can we crack down on the company’s excesses while allowing all the benefits?
Libra promises to deliver much lower transaction costs and convenience to migrants and their families, letting them hoard and carry less cash. The damage Libra might do in the world is hard to predict and impossible to quantify.
Remittances, the industry term for this practice of immigrant workers sending money to relatives, totalled $429 bn in 2016 – three times as much as total government foreign aid that year. Migrant workers in the UK sent home £8bn in 2016. Workers in the US sent more than $27 bn to Mexico in 2016. India received $62.7bn in 2016. China took in $61bn from around the world.
This practice is essential to the receiving countries, expensive for the workers who send the money and lucrative for the firms that handle the transactions. According to the World Bank, remittances can amount to as much as 20% to 30% of a recipient’s country’s gross domestic product. According to Unesco, the average fee for remittance transfers is more than 7% of the amount sent.
Billions of people around the world survive – even thrive – without formal bank accounts. They do so through a collection of cash, debit cards and money networks, including formal services such as MoneyGram and Western Union as well as informal global networks of trust often called hawala or hundis.
Because money networks must remain scrutable to major state regulators, the “crypto” aspects of the Facebook Libra system will not work at all like bitcoin, which can be used as a currency for transactions that fly outside the view of law enforcement. And unlike the encrypted messages people send through WhatsApp, Libra transactions would not be secret. To pass regulatory scrutiny they would have to be visible and verifiably tied to individuals.
Any company hoping to manage the monetary transactions of billions of people has to be able to satisfy a tangle of regulators working for nation-states, super-national state collections such as the EU, or individual states such as California or New York.
We need not panic about Libra. This network will take years to establish itself. But we should be concerned about further concentration of corporate power. Most seriously, it could wipe out many businesses, small and large, that have been serving people for decades.
The long game here is one for which Facebook has long been preparing. There is only one other service in the world that threatens Facebook’s global domination. WeChat, a social network primarily used in China, has offered popular payment systems for many years. In China, one must use WeChat for many transactions. If WeChat moves beyond its current market and challenges Facebook globally, Facebook better had offer a similar, perhaps better payment and money transfer system. Building on the vast market for remittances is the obvious way forward.
Not too long from now we could face a global financial and communication ecosystem dominated by two or maybe three firms. The full implications of such concentration are beyond our current imaginations.
Siva Vaidhyanathan is a professor of media studies at the University of Virginia and the author of Antisocial Media: How Facebook Disconnects Us and Undermines Democracy (Oxford University Press, 2018)