July 19, 2019

Thumbs Down for Libra

“In some ways, it’s a curious time to be launching an alternative currency. In the past, the main complaint about traditional currencies was their instability, with rapid and uncertain inflation making them a poor store of value. But the dollar, the euro, the yen, and the renminbi have all been remarkably stable. If anything, the worry today is about deflation, not inflation.

The world has also made progress on financial transparency, making it more difficult for the banking system to be used to launder money and for other nefarious activities. And technology has enabled us to complete transactions efficiently, moving money from customers’ accounts into those of retailers in nanoseconds, with remarkably good fraud protection. The last thing we need is a new vehicle for nurturing illicit activities and laundering the proceeds, which another cryptocurrency will almost certainly turn out to be.

The real problem with our existing currencies and financial arrangements, which serve as a means of payment as well as a store of value, is the lack of competition among and regulation of the companies that control transactions. As a result, consumers – especially in the United States – pay a multiple of what payments should cost, lining the pockets of Visa, Mastercard, American Express, and banks with tens of billions of dollars of “rents” – excessive profits – every year. The Durbin Amendment to the 2010 Dodd-Frank financial-reform legislation curbs the excessive fees charged for debit cards only to a very limited extent, and it did nothing about the much bigger problem of excessive fees associated with credit cards.”

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