 Hello and welcome to NewsClick. Recently, social media giant Facebook announced that its own cryptocurrency, Libra, would soon be launched. This announcement sparked a lot of discussion and controversy, especially considering Facebook's record over the past couple of years. To talk more about this, we have with us Prabir Bulkai sir. Hello Prabir. Prabir, so there are a lot of technical details of course about the proposed cryptocurrency but at a larger level, we've seen Facebook's record over the past couple of years. It's exposed all its claims it made about just being, just about being connecting people. So what is the implication of a company like Facebook actually entering into this domain? Well, just as a complete aside, it's really not a cryptocurrency. In fact, it's based on something which is cryptocurrency, supposedly. But unlike cryptocurrency, it's really backed by a certain set of companies which have set up checks to see whether the currency is right and so on. So I would say cryptocurrency is a misnomer for it, but let's park that aside. The issue that comes up and again, I'm going to park the issue of privacy separately because the major criticism of Facebook has been its privacy policies or its lack of it. I think I'll focus on three separate issues that come up. One is with respect to what happens if companies start forefloating what's called currency. The second part of it, which is the argument that it is actually something which will help the people who are not included in the financial system today. And the third, it claims that actually it is some free of central banks of countries. Looking at all three of this, let's be very clear. What's happening is Facebook's currency is still going to be under US law because Facebook is a company which is under US laws and therefore, the argument that it is free of all central banks is not true. We have seen earlier in the Iran case, for instance, US banks which held, including overseas bank, which held Iran's money, they actually seized frozen assets and Jimmy Carter's order very clearly says that they are all overseas branches of US companies are also supposed to freeze all money that Iran holds. So obviously, any money that is there in Facebook account is under US legal controls. That's one part of it. The second part of it is that it does appear that on the issue of privacy, there is some real cause of concern because it's also supposed to give what is called a digital identity. It is stuck to be in one place in the whole Libra White paper, but that seems to indicate that they, along with Facebook's partners, by the way, it's not just Facebook, there are associates of Facebook in it, consortium, but it's clear that Facebook is really underwriting the whole operations that they effectively that they will give what is called digital identity, which means that there is now going to be a digital identity given by private companies. And remember the Adhar argument that is there on the question of inclusions and exclusions. Let's be very clear. This is the argument that came up during free basics as well, when particularly in India when they said that we are going to include everybody and therefore we are making a internet available to everybody. What it meant was that giving Facebook to everybody and as Facebook's basic shall we say business model is eyeballs and selling it to advertisers. What they're doing is really tying up with telecom companies to provide Facebook and whoever would use the Facebook platform. So they could also garner their data as well and Facebook then would become leveraging that a much bigger shall we say eyeball collecting mechanism than any other company in India. And we knew that so-called financial exclusion was really gathering more and more commodities as we know on Facebook platforms like Facebook and Google. We had the commodity to gathering more of us. And that was the purpose of this extent our exercise. What is important is Facebook is now entering the financial world. And I think that is the that's what we need to discuss what happens when a currency supposedly a currency enters the financial world. What is the impact it is going to have on that world? I think that's the key difference that this thing is going to make. It's not inclusions. It is not a cryptocurrency and it is certainly not free of all control of governments. It is under US government control indirectly. So looking a bit more into what you said in terms of what is the impact of it. Now in many countries there has been also a regulation of these new financial instruments so to speak even in India for that matter. So but how does how do you think Facebook is actually placing this is some sort of an international currency despite all these regulations and rules being there. So here is the issue that any entity whether it's a bank or a financial institution that deals with something like money has to do two things. It has to ensure that people who keep money with them do not lose access to their money. That means it is not something that can be shall be seized by the party which is holding that money and there has to be a certain checks balances and regulations for that. The second part of is any transaction takes place within that system. Does these transactions get recorded for the purpose of what I would call regulatory checks of a different kind income tax to money laundering. All these come when you deal with money. So each country has its own regulatory structure which deals with either financial institutions in which banks are also a subset of them but specifically of course the banks as well because banks in fact are the conduit shall we say for the central bank to create money. So this given this infrastructure what happens when an entity which is extra shall we say country wise does not obey the laws of that country as you know Facebook in India for instance has said we are not under Indian law we are only responsible for US law and that's it. So what happens if an entity like this operating in the country says whatever financial transactions are taking place really taking place in the United States we do not have to obey any of your laws and all the regulatory restrictions which are applicable to financial institutions so what happens. This is the essential issue that we might get that it will free in that sense this so called currency which is being floated by Facebook out of the control of other countries except the US. So this is one issue that comes up. The second issue is come up how is it that Facebook currency will operate. This Facebook currency will operate by us buying effectively giving Facebook some cash. Now this concept of giving shall we say cash to a certain set of entities financial entities is already there in fact in India for instance ATM operates like that, Paytm operates like that then there is I think some phone pay so there are various companies like that and this are what are called digital wallets which you keep keep money and for transactions essentially using a mobile in China in fact Alipay and WeChat have become really popular and credit card transactions are not the major transaction particularly for smaller payments and from hotels to shops WeChat and Alipay are the two most common ways of transactions taking place. So these are really digital wallets in the case of Facebook they are creating a giant digital wallet in which we will transfer some money over there all transactions within Facebook ecosystem will be done by Facebook so it will become a giant market it will become a giant you know transaction exchange entity of all different kinds of my transferring money to or you transferring money to me all of that. So this will essentially become a huge giant wallet now when you transfer money or when a company buys or sells goods to Facebook that money is not going to get deposited in the bank but will be held by Facebook till the money is transferred for some purpose or the other which is outside the Facebook ecosystem. So effectively Facebook will add to its pile of cash it is already 40 million dollars in cash reserves that it is sitting on and it will also therefore add a huge pile additional pile of our money to that for which they don't have to pay the interest. So this is in that sense free money we will be storing our money with them and they can either play the markets with it or they could also use it for other purposes they could use it as an investment equivalent to investment banking so a whole bunch of activities can be done with it or even financing Facebook's expansion. And without any accountability unlike no accountability and if it takes well so does the money. But therefore this is really the digital wallet which will be created and the basic other issue will be supposing tomorrow a country like India comes under your sanctions like Iran did and that money can be seized also by the US government. So all of this raises a huge bunch of issues which I think people are not understanding that it is not about digital wallets it's not about XYZ it is not about money it's really about something else Facebook Facebook being able to reach out into our pockets creating an entire financial ecosystem which will be strictly under Facebook and under no legal constraints of any other country whatsoever except the United States and of course the currency transactions and can also be outside Facebook and you must understand the banks have the responsibility to keep certain things secret certain things to be shared they take care of a lot of the so-called compliances on transactions that happen and that's how we look at our statements to see what has happened and we use it for our compliances as well all this will become opaque and Facebook's record of any of this thing is not good so effectively things which should be shared only with the regulatory agencies the government will now be shared or be available for payment and things which I don't want people to know who are my clients who are the people I have transactions with which are something we I don't want to make it public and the bank starts competing with my business using that mainly that list of my payments the dangerous situation so effectively Facebook will have that kind of information who they can now sell to anybody as you know Facebook's model is really giving access to advertisers so you are really also creating a whole set of new things that will open up because Facebook treats data as something which can be bought and sold the banks of course credit cards and others may be selling data as well to data brokers we don't know but the point is there are certain set of regulatory checks on these entities and unfortunately none of them will operate on Facebook particularly as I said for countries outside the US also it's ironic that cryptocurrencies were also hailed as a new frontier of freedom so to speak which is completely cut off from the existing banking system which we had all the new age of independent so to speak for users and now there is this one version which could possibly lead to exactly the opposite direction and nightmarish ways you know all this so-called freedom of from government of this kind that has been talked about including the digital platforms has been essentially supposedly empowering the individual what it has been is to empower large platforms they have been empowered large platforms taking it out of the public infrastructure but a private infrastructure on which we then become dependent so a large part of communications today depend on Google the email to various other things beside this search if should it be a public infrastructure or should it be for the money-making purposes of Google the Facebook if it's a communication for our say social network should it be in completely in private hands like this or not so in the name of empowering the individual in the digital age everybody will get a printing press equivalent everybody will get a television studio kind of stuff what we have really got is empowered enormously the power of platforms now these platforms existed the financial as a financial institutions it's not that we need directly the central bank but what we really now talking about is empowering the Facebook ecosystem vis-a-vis all people and effectively Facebook will become the new suddenly the new financial behemoth if it is able to finally get a share of this pie which is your and my money essentially that's what the banks play upon it's not their money it's really other people's money so that's one part of it when you raise the issue of cryptocurrencies it's important to realize cryptocurrency have a huge transaction cost in terms of actual computations and that's why increasingly new cryptocurrency creation has to taper off because the more I think there's a 21 million upper bound beyond which Bitcoin cannot go so all of that taken together means that the more transactions takes place more competition power has to be exercised the way the blockchain operates again it's not a topic for today's discussion but what they have done is that by not using the blockchain effectively what the liberal attempts to do is to essentially make this transaction be permitted by checking with certain entities that more of the long and short of this is the number of transactions that can be handled still is not going to be as large for say what a credit card company can do so there would still be is it'll be relatively slower but yes using the system it's certainly be much faster than Bitcoin for example so those are some of the shall we say advantages of Bitcoin but the reverse part is true that somebody has to guarantee the transaction this is really money that real this this person has we know the person he's making a transaction I know that he has the money to make the transaction now this is not something that is that is something which is done by companies other than regulated entities and this is something that therefore Facebook is trying to play upon one side claiming that we guaranteed the transaction because we are somewhere using a crypto somewhere and the other side to say therefore there is no need for a regulation because we're doing that at the same time telling the people look it's not really crypto because otherwise it'll be too slow so we will verify it so effectively the verificatory role of the financial institutions dealing with money they are arrogating to themselves that's all that is happening in the so-called crypto that they are talking about so the bottom of it this is not really a cryptocurrency that is why it's been called a stable coin and so on which means its value will not fluctuate the same way as a dollar or any other currency can fluctuate I really don't know that you can have a currency that does not fluctuate and it is not pegged to anything in the world that what is the meaning of such a currency and how do you really then see it as money I'm not sure how this works because at the end of the day dollar is or all money is in some sense what society is accepted to be otherwise really we do not know once there is no gold standard what is the value of money let's also see value money as something which is used for exchange or stored as well so store a value or an exchange of value a lot of the classical economists or the Marxist would say at the end of it is actually pegged to labor power so that is the other issue that comes up but leaving all of it out if this is very clear that this is basically money being guaranteed by Facebook and its friends and the only difference between that and say the monopoly money that we have that we have played with the children is the fact that Facebook claims its money and Facebook has 40 billion dollars as reserves so if it claims something is money we would tend to believe that it is money when as I said on a monopoly board if I go to monopoly money people are really not taking that seriously thank you that's all we have time for today keep watching news click