Digital Currencies: A Moral Good?

The foundation of global financialization of capitalism in government created fiat currencies and bank credit may face disruption. Facebook seeks to use computers and the internet to provide private money.

The analogy comes to mind of “gold,” which was once the atlas supporting paper money and national credit. The modern administrative state has moved beyond gold to fiat currencies and central banking.

Facebook proposes to issue a digital currency called Libra. Facebook has 27 partners in this innovation in finance. Facebook will provide a government-free currency and a payment system through which to use it in the settlement of buy/sell transactions.

But the significant question is: how many Libras will be created?

The prudence associated with gold as support for money was that there was not so much of the ore available and more gold could not be made and disbursed on command by those prone to excessive consumption in the short run. If the amount of Libra in circulation can be gamed for short-term advantage, the currency will encourage boom/bust cycles and periodic collapses of financial markets as in the tulip mania, the South Sea Company, the Mississippi Company, 19th century bank crises in the U.S., one after another, the stock market crash of 1929, the dot-com bubble and the subprime mortgage crisis of 2008.

Government regulators, to date, are not opposed to the Libra. They just want it regulated in the public interest.

I have mixed feelings about the innovation. Competition with government fiat currencies may provide new opportunities for ordinary people to access goods and services or receive as wages. But the history of money and credit is one of many false hopes and manipulation of amounts in circulation contrary to the common good.