Globalization has led to connected economic networks of export, import, investment flows & global value chains. This has created deep inter-dependence between countries and the inter-dependence herein is not balanced. These economic networks are not ideal models of diffused power and co-operative control between states. They are often lopsided, which provide certain states with levers to extend their political & economic influence beyond borders. States weaponising networks inter-dependence is seen in various systems.
In case of the Internet, the USA has been a key decider of its structure. From the beginning it has emphasised on self-regulation of the internet, as it provides an open field to the US IT firms. The open internet structure has been strategic to the US firms as it allows them unobstructed growth into new markets. The NSA PRISM program, its access to internet exchange points and underground optical cable landing stations is a case of weaponisation of information. The USA has allegedly been mining information off the internet to its ‘home advantage’.
The SWIFT network is used by financial institutions to send financial instructions securely. Handling billions of financial transactions the world over, it is a global repository of transfers and is central to global finance. The USA is known to use this for its surveillance purposes. SWIFT data is used to uncover unseen financial links & the network is used to impose financial embargoes on countries where it deems fit. USA and Europe have routinely weaponised SWIFT to enforce sanctions against the Iranian regime.
Besides government, networks are vulnerable to misuse by private firms. British political consulting firm Cambridge Analytica harvested the data of 87 million Facebook users to identify and send targeted political ads before the 2016 US presidential elections.
The emerging financial technologies (Fintech) are weaving the new economic networks. FinTech innovation essentially provides new methods for money transfer & payments, budgeting, savings & investment, borrowing, insurance etc. Fintech is providing us with new digital options for currency notes. A Facebook subsidiary Calibra has announced last June a new global digital currency ‘Libra’ powered by blockchain technology. Unlike existing crypto-currencies it is backed by a Libra Currency Reserve which would cover the value of its currency in circulation.
Libra is the seventh sign of the Zodiac symbolized by a pair of scales held by Themis the Greek goddess of law and order. Libra is an ambitious word play indicative that Facebook would bring a new order to the world financial system. The Libra white paper released proposes to cater to the 1.7 billion adults who are outside the traditional banking system. 1 billion of these adults have a smartphone and half of them have internet access.
The Libra digital wallet would have a global reach. Unlike existing crypto-currencies, its volatility would be controlled making international transactions possible at a much lower transaction cost. Libra has an open platform. Its source code is available for collaboration. Third parties can build applications on top of Libra. The third party applications could provide local currency transactions and integrate Libra intimately into the existing economy. Facebook itself has 30 Crore users in India. Besides Facebook, Libra can piggyback on WhatsApp & Instagram which are owned by Facebook. By providing incentives and discounts to the existing user base Facebook can easily reach scale of operation in any market.
Right now though, Libra may be flying too close to the sun. It does not have the support of regulators, central banks & does not account for anti- money laundering and other monetary control requirements. The head of Calibra was summoned by the US Senate Banking Committee last July.
While this Libra idea may be half baked, its motivation stems from the operational inefficiency & high costs in financial services. As per the World Bank report the average cost of remittance to India in Q1 of 2018 was around 5.8%. The total remittances send to India by the migrant workers and other NRIs from countries such as UAE, USA, Saudi Arabia, Qatar in 2017-18 was $ 69.1 billion. The transaction cost on this volume works out to be $ 4 billion or around Rs. 28,000 Crores.
Developing countries like India are large fintech markets. As per the EY Global FinTech Adoption Index 2019, India and China have the highest fintech adoption of 87%. In tech growth cycles like in e-commerce, we have usually have had a ‘leave-things-alone-till-they-are-big’ attitude. Network structures once established are difficult for outsiders to challenge. Would big Fintech become one of those systems controlled by a select group of countries?
Facebook or any other firm should not decide unilaterally how to solve the developing country problems. Solutions should be conceptualized closer to home by the developing countries for themselves. Moreover, money as a system is based on public trust. Its stability & acceptability stems from the issuing state’s credibility. Zimbabwe, Weimar Germany in the past and current day Argentina are clear examples of how money and state sovereignty are inescapably linked. Fintech networks are not just payments and transfers; it is also a question of the nation’s security and sovereignty. Therefore, we may look at systems such as the pan-European TIPS and create our own home grown alternative settlement currencies and efficient payment channels rather than allowing any questionable market-based innovations.
Intellectus Commercium 