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There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars,

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price of Libra, right? Am I understanding things correctly? With the banks we're used to there's a potential tragedy of the commons in that their separate decisions all affect the shared money supply, which is indistinguishable, so one reason to have a central bank is to get some overall control of those distributed decisions. A distinct competing currency already under a single decision maker doesn't so obviously need that extra governance. I don't know, maybe it does, but I'd like to see the reason spelled out. (Hayek raised this point in his Denationalisation of Money.)

bo1024 7y ago
I think the plan for Libra is always to have its value tied to something stable (USD for sake of argument, but more complex in practice). Each libra would be backed by 1 dollar or whatever. (I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)
- abecedarius 7y ago
  OK, but we're talking about cases where something goes wrong. What are some somethings? - Libra screws up and its value is unstable. Pissed-off customers switch to other currencies, at a loss. - Libra turns out to be a great stable currency while the Fed screws up so badly that everyone scrambles to get out of dollars. It's a giant disaster, but not one I'd describe as "Libra destabilizing the financial system" -- I'd call it them offering a lifeboat -- a well-run firm outcompeting a poor one. (This seems unlikely, and I'd hate to see Facebook become this powerful because I can't stand Facebook. It's just, in this scenario they'd have done a useful thing.) - Libra is so successful they gain a new effective monopoly, and then they fail or exploit their position. Is the worry something else? I don't understand money very well, for all that I've read multiple books, took ec in college, etc. There's so much BS around it.
- deleted 7y ago
  [deleted]
roenxi 7y ago
> but the new money is not denominated in dollars, it's in Libra That would be a problem from the governments perspective. Any theory that starts by assuming normal economic forces forces where money is concerned is risky. The supply of money is actively managed by governments in response to various things. That ability to exchange serious amounts of money is not usually tampered with but is generally required to flow through systems which a national government controls (usually the US Government) and there are gate-keeping fees to get involved. The ability to make loans or do creative accounting at scale is also locked down with regulations and requirements. It is an interesting situation because the distortions don't directly generally stop anyone doing anything directly; but the way winners are chosen doesn't function exactly like a theoretical free market. Facebook is unlikely to be selected as a winner if they just jump in feet first; and particularly if they want to expose the monetary system to supply-demand forces that aren't under government control.
bobthepanda 7y ago
> the main effect will be on the market price of Libra, right? National central banks in the modern era have two functions: manage the money supply and make sure that the economy is running well. It's true that Libra would be the only direct impact, but then you have people who have debts in dollars and revenues in Libra, and if they can't pay back their dollar debts then their lenders are now short of dollars and can't pay back their obligations, and now we have a financial crisis. Examples of this include 1997 in Asia: https://en.wikipedia.org/wiki/1997_Asian_financial_crisis https://en.wikipedia.org/wiki/1997_Asian_financial_crisis
- abecedarius 7y ago
  Thanks. I'm skeptical that this management of the economy on net makes it go smoother -- I can't understand what they're doing even as well as they do without far more study, but I can e.g. notice that respected economists were seriously starting to think the "great moderation" had been achieved by the years just before 2008. (Not just hindsight bias, since I was reading them at the time.) But yeah, that point of view is a lot more mainstream and could well be more right.
  - bobthepanda 7y ago
    Love or hate what the Fed is currently doing, it's a known quantity that has managed to avoid a serious run on the dollar since the '80s. Libra at this point is a proposal that has yet to be anywhere remotely close to battle-tested. Better the devil you know than the devil you don't.

bo1024 7y ago

I think the plan for Libra is always to have its value tied to something stable (USD for sake of argument, but more complex in practice). Each libra would be backed by 1 dollar or whatever. (I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)

abecedarius 7y ago
OK, but we're talking about cases where something goes wrong. What are some somethings? - Libra screws up and its value is unstable. Pissed-off customers switch to other currencies, at a loss. - Libra turns out to be a great stable currency while the Fed screws up so badly that everyone scrambles to get out of dollars. It's a giant disaster, but not one I'd describe as "Libra destabilizing the financial system" -- I'd call it them offering a lifeboat -- a well-run firm outcompeting a poor one. (This seems unlikely, and I'd hate to see Facebook become this powerful because I can't stand Facebook. It's just, in this scenario they'd have done a useful thing.) - Libra is so successful they gain a new effective monopoly, and then they fail or exploit their position. Is the worry something else? I don't understand money very well, for all that I've read multiple books, took ec in college, etc. There's so much BS around it.
deleted 7y ago
[deleted]

roenxi 7y ago

> but the new money is not denominated in dollars, it's in Libra That would be a problem from the governments perspective. Any theory that starts by assuming normal economic forces forces where money is concerned is risky. The supply of money is actively managed by governments in response to various things. That ability to exchange serious amounts of money is not usually tampered with but is generally required to flow through systems which a national government controls (usually the US Government) and there are gate-keeping fees to get involved. The ability to make loans or do creative accounting at scale is also locked down with regulations and requirements. It is an interesting situation because the distortions don't directly generally stop anyone doing anything directly; but the way winners are chosen doesn't function exactly like a theoretical free market. Facebook is unlikely to be selected as a winner if they just jump in feet first; and particularly if they want to expose the monetary system to supply-demand forces that aren't under government control.

bobthepanda 7y ago

> the main effect will be on the market price of Libra, right? National central banks in the modern era have two functions: manage the money supply and make sure that the economy is running well. It's true that Libra would be the only direct impact, but then you have people who have debts in dollars and revenues in Libra, and if they can't pay back their dollar debts then their lenders are now short of dollars and can't pay back their obligations, and now we have a financial crisis. Examples of this include 1997 in Asia: https://en.wikipedia.org/wiki/1997_Asian_financial_crisis https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

abecedarius 7y ago
Thanks. I'm skeptical that this management of the economy on net makes it go smoother -- I can't understand what they're doing even as well as they do without far more study, but I can e.g. notice that respected economists were seriously starting to think the "great moderation" had been achieved by the years just before 2008. (Not just hindsight bias, since I was reading them at the time.) But yeah, that point of view is a lot more mainstream and could well be more right.
- bobthepanda 7y ago
  Love or hate what the Fed is currently doing, it's a known quantity that has managed to avoid a serious run on the dollar since the '80s. Libra at this point is a proposal that has yet to be anywhere remotely close to battle-tested. Better the devil you know than the devil you don't.