How New York's planned digital currency sidesteps Libra's issues
Facebook’s Libra cryptocurrency project has drawn vast political pushback, but also more tangible government action as nations globally consider central bank supported digital currencies. It’s also sparking a potential bottom-up approach in New York.
A New York state bill would create an “inclusive value ledger,” or a free public savings and payment platform. The bill is in committee and has support from mostly liberal members of the state legislature.
Its designers position the bill as a financial inclusion initiative that would act as a public option for P2P payments for micro-merchants such as those providing tutoring, babysitting, elder care and community work.
The concept of government-backed accounts that support cash access and payments bears some resemblance to an automated version of Post Office banking. IVL would create a digital debit-credit ledger. State residents could use the ledger to receive tax credits, remittances and government benefits outside of the traditional banking system.
Robert Hockett, a law professor at Cornell University who consulted on the New York bill, said Facebook’s Libra project has cast a spotlight on the larger issues of financial inclusion that would have otherwise been ignored.
“The payment system is kind of like your skeleton, it’s taken for granted but is not available for everyone,” Hockett said.
The bill has been in the state legislature for about a month, a period that has seen much larger jurisdictions push digital currency projects. Sweden’s Central Bank recently issued a plan for its own currency, which would support payments, cross-currency transactions, digital IDs and a contingency for physical cash in case the system fails.
The European Central Bank has issued guidance on how its central bank digital currency would manage anonymity. U.S. Federal Reserve members have discussed the possibility of an American currency; and France plans to test its own currency early this year. Lithuania and Canada have also tested blockchain-based digital currencies backed by their central banks.
These projects are early stage but come against the backdrop of Libra, which has sparked concern among central banks that Facebook’s scale could allow it to operate outside of central bank control.
Many of the nations pursuing currencies, including France, Germany and China, also have politicians that have been the most vocal in opposing Facebook. While the U.S. has hedged on whether it will build its own currency, U.S. Federal Reserve members have publicly called out Facebook, including raising the possibility Facebook will use its social network to promote Libra over other digital payment types.
Calibra, the Facebook subsidiary that’s overseeing Libra, did not return a request for comment. David Marcus, the Facebook executive who has become the face of Libra, has said Libra will not create a shadow currency, and will not launch until regulatory concerns have been addressed.
“You see the announcement of Libra and the gathering momentum for these initiatives,” Hockett said, adding a successful currency on the state level could spark more states to adopt the concept, creating a network effect or pushing the federal government to act. “This all generates more attention to payment platforms generally and digital currencies in particular.”
The New York inclusive value ledger is parallel to other political initiatives in New York designed to address the growth of digital financial services from banks and fintechs. Politicians in New York and other eastern states have advanced legislation that mandates merchants accept cash. Those bills were seen as a counter to Amazon, which has opened checkout-free stores in New York and elsewhere, and has since adjusted its Amazon Go model to accommodate cash.
The bills spark a debate about the role of government in expanding access to financial services, and also create potential expense. In the U.K., Barclays reversed a decision to not participate in a national postal service program for cash access after a rate increase.
The U.S. financial system has succeeded in reducing the number of underbanked and unbanked, argues Eric Grover, a principal at Intrepid Ventures. “New York launching its own P2P payment system, currency and banking and payments platform would further politicize delivery of financial services,” Grover said.