All currencies are based on trust. This is what distinguishes them from Facebook's stablecoin. Only a fool would trust Libra, the Nobel laureate believes.

The well-known economist and Nobel Prize winner Joseph Stiglitz wrote a column dedicated to Facebook's Libra. According to Stiglitz, the fact that Facebook considers it necessary to create its own currency, demonstrates “what is wrong with 21st-century American capitalism”.

“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, euro, yen, and yuan 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 economist notes that the main users of Libra will be persons who want to hide criminal proceeds or evade taxation. If persons want to buy Libra, they will need to buy exchange their fiat assets, that is, in fact, put them on a deposit in Facebook. The social network will be able to make an arbitration profit on these deposits. Stiglitz believes that this is the main business model of Libra, and therefore the governments of the world should prevent the launch of this cryptocurrency.

“At the very least, Libra should be subject to the same transparency regulations that apply to the rest of the financial sector. But then it wouldn’t be a cryptocurrency.”

Stiglitz notes that the main problem of the current financial system is the lack of competition in the field of payments and storage of assets.

“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.”

Stiglitz suggests that the belief that Facebook's stablecoin will help reduce banking fees, speaks of a general lack of trust in the financial system.

“Then there is the broader question of trust. Every currency is based on confidence that the hard-earned money “deposited” into it will be redeemable on demand. The private banking sector has long shown that it is untrustworthy in this respect, which is why new prudential regulations have been necessary.”

“But, in just a few short years, Facebook has earned a level of distrust that took the banking sector much longer to achieve <...> Only a fool would trust Facebook with his or her financial well being. But maybe that’s the point: with so much personal data on some 2.4 billion monthly active users, who knows better than Facebook just how many suckers are born every minute?”