On Money: The Libra versus Sovereignty

A US-based progressive monthly, The Nation, just published an article about the Libra by MMT enthusiast Rohan Grey, titled:

Facebook Wants Its Own Currency. That Should Scare Us All. Instead of embracing Facebook’s Libra, we should be rallying for a public option for digital currency.”

This is an interesting article and deserves close scrutiny for several reasons. First of all it sounds the alarm about this proposal by a group of transnational corporations led by Facebook to capture the privilege of issuing currency at the expense of sovereign, public institutions. For Democrats, he observes,

. . . the core issue is the ever-greater concentration of economic power in the hands of private actors who lack any meaningful commitment to democratic values.

Secondly, and as a direct effect of this concern, citizens will have to think seriously about what money is; where it comes from; the advantages and disadvantages of the current system; and what reforms are possible and needed to prevent a wholesale kidnapping of our money system.

For better or worse, Libra has brought monetary reform to the forefront of our collective consciousness, and made it impossible to ignore.

The third point is the author’s own extensive list of possible changes, which is blind to the most obvious solution. He commendably mentions bank accounts at postal banks to service the un- and under-banked, and the introduction of digital cash. But, while he refers to the Bank of England’s seminal 2014 paper on how commercial banks create most of our money supply, he merely proposes to regulate that practice and not bring it back under democratic control. He ignores the solution presented by sovereign money advocates who are actively fighting for returning money to democratic control.

The fourth point is that the author of this article, Rohan Grey, is highly sympathetic to modern monetary theory (MMT), which is an amalgamation of economic theories and incorrect assertions. For sovereign monetary reformers, a very curious aspect of MMT is that it correctly embraces the credit theory of money creation, i.e. banks create 90-95% of what we use as money through extending loans, but it is strangely oblivious to the disastrous effects and possible remedies of that privatized money creation system. This MMT sympathy would explain why the author is in favor of digital cash but not necessarily of nationalizing the money supply, which would remove the current privilege of private commercial banks to create our money supply.

We are in agreement with MMT’s opposition to a corporate owned and controlled money system such as Libra and will work with them to oppose this development and promote public digital cash. However, we strongly disagree with MMT’s desire to keep the existing privately-created debt-money supply intact, because it is dysfunctional. Leaving the current money system in place and supplementing it with some changes in banking does not solve the deeper systemic problems of inequality, injustice, and an unsustainable economy. Upgrading from privately created debt-money to publicly created asset money is the best long-term solution. Why does MMT ignore this solution?

The author closes the article with arguably the best observation made on the Libra.

Libra, then, represents the preemptive privatization of a global public monetary layer that does not yet exist: a neoliberal corporatist’s wet dream.

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Paul Lebow

It odd that Rohan would use the term “monetary reform”. MMT proponents usually insist that they do not promote monetary reform or that reform of the monetary system is needed. Its a perfect example of the ambiguity that surrounds MMT. Curiouser and curiouser….