By Shadrack Muyesu
Banks create money, they don’t lend it. When a bank gives out money, it pretends that you have deposited the money…it is to invent liability…this is how the money supply is created – Prof. Richard Werner
Like many big corporations, banks thrive on speculation – except that they control the system or at least benefit from insider knowledge, which isn’t speculation after all. In times of tranquility, banks will push money into the system, bringing down the cost of borrowing in the process and inducing borrowers into more loans. Afterwards they will gradually scale interest rates. This pushes the cost of credit upwards leaving people struggling to pay back their loans. With every default, the banks takes possession of real wealth in the land and assets traded as collateral. Anticipating a market crash due to the high number of defaulters, established lenders insure themselves by dumping the bad loans in trade-offs. Unaware of the looming crisis, the smaller institutions take up these loans viewing them as an opportunity to eat into the big banks. And when the market eventually collapses, it is these big lenders that benefit from bailouts never mind that they didn’t make any losses to start with and the fact that they are perhaps richer from the real tangible wealth they acquired. With the new money, they will buy off the struggling competition further consolidating their dominance.
Consider this: a fundamental principle is that money ought to be pegged on a certain standard value. It is a long held tradition that preceded the industrial revolution and the bank renaissance in England where all money was pegged on a gold standard. Simply put, what is considered as money is nothing but a paper receipt representing an actual value of gold stored away somewhere. The large circulation of these receipts resulted in their eventual acceptance as legal tender pushing the profit driven banks to issue more receipts (notes) beyond the value of the physical gold. The notes soon lost their value causing a major credit crisis. To solve this crisis, the English Crown stepped in to take the money making function away from private banks and make it a preserve of the central bank and thus government. The Central Bank would now keep all the gold, this time represented by silver and copper coins and issue out notes to the private banks representing the value of the reserves they maintain with (the central bank)
And it was a god thing, except that no one anticipated the dawn of the electronic money age and the possibility which existed even then that the Central Bank such as the Federal Reserve could be privately owned. Well that day has come.
In the UK alone, electronic money accounts for more than 95 percent of the money in circulation with transactions carried out on a mobile platform. This allows banks to create fiat money (money not pegged on any standard, air money) by issuing loans: just like the old times
Ideally, every time a borrower borrows, a bank ought to remove from its core capital and other deposits and give the borrower in exchange for land and capital as collateral. However, in this new electronic age where demand far outweighs supply, banks will credit the borrowers account with fiat money instead. The money lost is topped up by other real money deposits thus maintaining the core. To offset this loan, the borrower withdraws real money from another bank in effect reducing its core capital and raising that of the borrowing bank. He could also get real money from other non-banking institutions and sources such as home savings to top up the core capital of the lender.
The real steal however comes in the form of the collateral the banks accept. The result is that the value of these features will rise without any resultant productivity with the bank minting a fortune when it eventually possesses them. The banks make a kill when the ratio of real money in the system remains unchanged. This easy money is invested in real estate further driving its cost and the cost of living at the expense of the small man.
According to some commentators, Congress illegally gave the Fed the right to print money (through Treasury) at no interest to the Fed. As already stated The Fed creates money from nothing and loans it back to the people through the banks at an interest. The Fed also buys government debt with money printed on a printing press and charges US taxpayers interest. It collects billions of dollars annually and shares the profit among its shadowy shareholders. It’s an outright fraud and one that many presidents and Congressmen have called out before.
Although the electronic money age means that private banks have eaten into their profits somewhat, it’s a feeble challenge considering the hallowed ground the Fed still occupies as the regulator of the most trusted currency in the world. The US government needs the money to finance its nefarious interests around the world and assert itself politically. The dollar also remains the premium mode of exchange in international trade and the preferred currency for foreign reserves for a large majority of countries. As the printer of this currency and the regulator of policy, the Fed has a lot of clout.
According to Facebook, the Libra is designed to be a currency where any user knows that the value of the Libra today will be close to its value tomorrow and in the future. Just as consumers in Europe know the number of Euros it takes them to buy coffee today will be the similar to the number of Euros it will take them tomorrow, holders of the Libra too can be confident that the value of their coins today will be relatively stable across time.
The reserve is the key mechanism for achieving value preservation. By backing each coin with a set of stable liquid assets and by working with a competitive group of exchanges and other liquidity providers, users can be confident that they will be able to sell any Libra coin at or close to the value of the reserve at any time. This gives the coin intrinsic value on one day and helps protects against the speculative swings of other cryptocurrencies. The goal is for Libra to exist alongside existing currencies.
Why the hostility?
Libra is a form of fiat money typical of the disruptive electronic money age. Calibra is the electronic wallet or bank account where this money is held. This electronic bank account is hosted by Facebook which makes it a very powerful entity. Therefore, while Mark Zuckerberg denies it, the Libra is indeed a currency and Facebook is assuming the role of a banker and a regulator. Banks operate in exactly the same way so why should the Libra be treated differently?
Government seems right when it says that the dollar should replace the Libra and that the Calibra should be regulated by the Fed like all other banking institutions. Otherwise there is a fear that Facebook could outgrow banks and replace the government.
In one part governments won’t have ways of preventing money leeching out to other countries. After all, while the goal of Libra is to exist alongside other currencies, the value of these currencies, propped up by their various economies isn’t the same.
In another, a problem with the system could lead to a global shut down. All it takes is one cyber-attack and if there is anything that Facebook has shown us so far, it is the fact that it remains far from being able to keep everyone’s data safe. Liquid cash is a more lucrative commodity.
Others argue that, far beyond other cryptocurrencies, the Libra is not a respecter of sovereignties. It’s already obvious that if successful, considering its reach and ease of use, the Libra will replace central banks. Skeptics say that we should be with government on this one: the right to make and keep and distribute money in a large corporation like Facebook is just too much power in one hand. As it is, Facebook is already aware of every facet of the lives of its users and is using this information to influence markets and control behavior. Imagine what it could do with the extra power.
“Libra, as a form of cryptocurrency is almost impossible to regulate; the other day blockchain was broken by a super computer. How many countries can afford the grand design needed to monitor all these transactions that the Libra will be opening doors to? Drug dealers won’t be using PayPal to pay for their goods anymore…there is no need to clean money that you can move in the speed of light,” says Zack Kanyotu, a Tech expert.
“Look at how M-Pesa is dominating, and it’s not a cryptocurrency. How do you monitor massive transactions globally when almost everyone is trying to avoid taxes and other obligations?”
All these are genuine concerns, but there is a bigger fear that Congress and the interests it represents won’t discuss openly. The truth is that the US government won’t support Zuckerberg because their power comes from controlling the banks and therefore the entire world through the Federal Reserve. Indeed, if you take the Fed and its Dollars out of the equation, the US is just another country.
When people no longer have to trade in dollars and when countries are not compelled to keep dollar reserves, the dollar will lose its value. The United States will no longer be able to influence geopolitics through Federal Policy, she will also be unable to strong arm dissidents by monitoring their wealth and limiting their transactions.
All problems of the world are problems of money. International policy is influenced by large corporates who support government in return for easy money. It’s the reason why the crisis of the oil rich Golan Heights knows no solution, why the US is leaving Syria but keeping “a small force” to guard oil wells; why she maintains strategic bases across the oil rich Middle East and is engaged in a tech war with China. Zuckerberg’s success will bring equality into the financial system and its Eureka to most human problems.
So far Zuckerberg is holding out. Equality of money and ease of trade is what makes the Libra unique. Accepting the government’s proposal jeopardses that. (