Call it an in-your-face taunt that Facebook, the social media platform for some 2.38 billion worldwide users — while beleaguered by seemingly never-ending privacy issues with the US Federal Trade Commission in its 15 years of existence — has launched its own cryptocurrency, much to the Federal Reserve Bank’s dismay. It is probably the ultimate face-off between today’s 10-year-old high-tech cryptocurrency and traditional money as first recorded in Sumerian cuneiform tablets of 4,000 BCE.
US Fed Chairman Jerome Powell at a Senate Banking Committee in July acknowledged that a systematic scale of cryptocurrency use could fundamentally change the global financial system. Writing in The Conversation (theconversation.com), Bhaskar Chakravorti, Dean of Global Business at Tufts University, cautioned on the power and reach of Facebook: “Though the Trade Commission has issued its largest-ever fine of $5 billion for violating a 2011 privacy settlement in late July, the amount is only about a month’s worth of the company’s revenue, suggesting that the fine, while seeming large, is, in fact, rather modest.” Facebook is so big that it is worrying President Donald Trump, who, according to a Washington Post story in July, suggested that the federal government should take Facebook (and Google) to court, potentially on antitrust grounds.
But Facebook assuages all, saying that it will not be running the cryptocurrency “Libra” directly, rather it will be run by the non-profit corporation called the Libra Association, made up of 27 members including PayPal, Uber, Spotify, Visa, and Mastercard, to be headquartered in Geneva, and to be regulated by Swiss financial authorities. But of course, a subsidiary, Calibra, will provide free digital wallets to allow people, including those without a Facebook account, to buy, send, and use Libra (starting 2020) on two of Facebook’s core messaging apps, WhatsApp and Messenger, explained Facebook executive David Marcus during a CNBC interview on June 18.
Libra will be different, Marcus said, because its value will be pegged to a basket of established currencies such as the US dollar, the euro, the yen, and others. Each purchase of Libra will be backed by a reserve fund of equal value held in real-world currencies to stabilize Libra’s value, he explained. For a hedge against volatility, Libra will be a “stablecoin” since it is backed by the reserve fund, unlike volatile cryptocurrencies like Bitcoin which has caused loss of capital for speculative investors, according to a Bloomberg story on June 18. Facebook wants its cryptocurrency to one day rival the Greenback.
“The announcement was met immediately with political opposition in Europe, with calls for tighter regulation of the company. French Finance Minister Bruno Le Maire said Libra shouldn’t be seen as a replacement for traditional currencies and called on the Group of Seven central bank governors to prepare a report in their July meeting,” said Bloomberg. “The Bank for International Settlements (BIS) in Switzerland, the central bank for all central banks, had expressed fears that initiatives like Libra pose a long-term threat to central banks’ control of money,” said The Philippine Star in a July 5 story.
“There cannot be a total disregard for a central bank or a third party that provides lender of last resort facility,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo was quoted in an msn.com story on June 9. Cryptocurrency, the story explains, “is a type of virtual currency that uses cryptography — a method of storing and transmitting data in unreadable form so that only the intended recipients can read and process it… Guinigundo said blockchain and general forms of distributed ledger technology can be useful for payment and settlements for peer-to-peer transactions and therefore could potentially bypass the banks and banking system in general.”
According to the msn.com story, the BSP’s Technology Risk and Innovation Supervision Department reported that transactions in the Philippines involving virtual currencies “almost doubled to $390.37 million in 2018 from $189.18 million in 2017,” for payments and remittances. “BSP Circular 944 dated Feb. 6, 2017… required virtual currency exchanges to register with the BSP as remittance and transfer companies and were required to put in place adequate safeguards to address the risks associated with virtual currencies, including control measures to counter money laundering/ terrorist financing, technology risk management systems, and consumer protection mechanisms.”
Certainly, cryptocurrency is not illegal in the country, but clearly, regulations only cover remittances or money changing businesses and not direct issuance as practiced by some groups into investment schemes. BSP Financial Supervision Sector Managing Director, Arifa A. Ala was quoted by the Mindanao Times on July 19 as said, “if the business of cryptocurrency is about remittance or similar to remittance business, we register them.” The BSP has not authorized any cryptocurrency ATMs in any location in the Philippines. A separate approval may be required from the Securities and Exchange Commission (SEC) for the issuance of initial coin offerings and operation of crypto trading platforms, noted news.bitcoin.com.
“The BSP has registered 11 cryptocurrency exchanges, allowing them to operate in the country, according to the most recent list of Remittance and Transfer Companies with Money Changing or Foreign Exchange Dealing and Virtual Currency (VC) Exchange Service,” news.bitcoin.com noted in its June 24 story, “48 Crypto Exchanges Approved in the Philippines.”
Separately from the BSP-registered, there are 37 other VC exchanges registered under the Cagayan Economic Zone Authority (CEZA), a freeport offering foreign companies incentives and advantages to registering their businesses there. According to the news.bitcoin.com story, the CEZA’s “Financial Technology Solutions and Offshore Virtual Currency Exchange (OVCE) Business Rules and Regulations of 2018” there are two types of licenses: 24 companies have the OVCE Principal license which allows offshore fintech business and crypto exchange activities and 13 have the OVCE Regular license which allows only offshore crypto exchange activities.”
The CEZA, together with property developer Northern Star Gaming and Resorts, is building what is called the Crypto Valley of Asia in a 54,119-hectare area at the northeastern tip of the country. It is meant for the operation of 10 blockchain and crypto companies — with a 25-shop housing development and a world-class internet data center, crypto-mining firms, self-contained power production facilities, and a state-of-the-art cyber security and risk assessment facility. It will be a POGO (Philippine offshore gaming operators) hub, like the two other POGO hubs approved by The Philippine Amusement and Gaming Corp. (PAGCOR) in the Clark and Cavite freeports.
PAGCOR Chairman Andrea Domingo said the POGO industry is “here to stay,” according to a Philippine Star story (July 13), emphasizing that the industry is now well-regulated. She said PAGCOR is expecting to generate P8 billion in gaming revenues from POGO this year, on top of the P11.9 billion already collected by the regulator from 2016 to 2018.
But how would PAGCOR regulate the POGO virtual hub at CEZA, with its cryptocurrency and its ethereal idiosyncrasies? What would the Bureau of Internal Revenue expect to collect? General Counsel and Senior Assistant Governor Elmore Capule was quoted by the Mindanao Times as saying the BSP does not regulate the buying and selling of the currency because, “what is the value? You cannot see the underlying value, essentially it’s just speculation, the price can go up and down within a day so what’s our control on that?” Capule verbalized what many fear — that cryptocurrency investing can be “some kind of pyramiding.”
It is an in-your-face assertion of the virtual into our socio-economic realities. Face up to the New Now, but make haste slowly.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.