Imagine the headline….
Facebook Credits – the new Global Reserve Currency!
Dateline 1 April 2013
“The Central Bank of China to day announced that from today it would peg its currency the Renminbi against the Facebook Credit, Facebooks own unit of currency which it only launched less than 18 months ago on 1st January 2012. Since Facebook now has over 1.5 billion users on its platform and its currency reserves now exceed that of the Central Bank of China, the Chinese Government argued that it is a more stable and less political global anchor point than the hitherto favoured US Dollar. In New York, the yield on 30 year US government bonds surged to an all time high as confidence plummetted…..”
Friedrich Heyek, the Nobel winning Austrian Economist argued
“Although he had favored central banking for most of his life, in the 1970s he began advocating denationalizing money. Private enterprises that issued distinct currencies, he argued, would have an incentive to maintain their currency’s purchasing power. Customers could choose from among competing currencies. Whether they would revert to a gold standard was a question that Hayek was too much of a believer in spontaneous order to predict. With the collapse of communism in Eastern Europe, some economic consultants have considered Hayek’s currency system as a replacement for fixed-rate currencies.” Library of Economics and Liberty – link here
In his recent and very popular post Thomas Power last year argued persuasively that Facebook might become a bank – see the YouTube video here. His argument was that the group power of Facebook could disintermediate the banks – offering more competitive lending terms, better lending terms, credit cards, insurance and group buying. He also pointed out that as peer to peer lending can be done at lower risk, this activity too could be taken over by Facebook.
However, I think it is possible to take this argument one step further – to its logical conclusion. Facebook issuing its own currency. Globally at a stroke they would not disintermediate banks but Governments. People in any location could trade their online and offline goods and services for Facebook Credits (Lets not call them dollars – so 20th Century!). The strength of this currency would not be subject to the whims of incompetent polititians running huge fiscal deficits with damaged currencies from the Zimbabwean dollar to the Euro!
The exchange rate would be set freely and would be subject purely to supply and demand. If the local economies are badly run, the offline currency would weaken against the FB Credit and this would incentivise people to switch to only receiving payment for their goods and services online in Credits.
The exchange rate could be set without a buy and sell margin thereby disintermediating currency exchange brokers (and banks) who make money out of our need for different currencies – something now totally unnecessary. You need to go abroad – fine pay with FB Credits when you are abroad – there is no need to buy foreign currency.
As the rate of exchange moves globally in real time, there is no arbitrage opportunity for forex traders. Of course, they can take positions and trade in and out of the currency but the FB Credit would not be open to cynical political opportunism and interest rate maniplulation.
The need for real currency – paper and coin – can also be disintermediated – actually done away with. By using smart phones and online payments FB credits can be used for the smallest of amounts with an App or for larger amounts by logging on to your FB account and making a transfer.
The reserves that would swiftly accumulate would make Facebook one of the strongest asset backed companies in the world. Unlike Governments, they have no need to recycle this money into the economy. They would become a central bank in their own right.
But why stop at Facebook – Microsoft, Ebay, Google any and all of these have the online ablility to offer such a service. Ebay already owns PayPal after all. The key winning differentiator is however the numbers – Facebook has all the names and for that reason I believe it would be the winner and become the new Global Reserve Currency for the 21st Century.
Well, a bit off my Six Minute Strategist path but the idea excited me and I wanted to share it with you. Please tell me what you think? Drop me a comment or an email. If you really like it – please Tweet it.
On Friday, the Six Minute Strategist returns to normal service – I have a blog post explaining the Social Media Ecosystem for you.