Jeffrey P. Waldron is a J.D. candidate, 2021 at NYU School of Law.
Amidst a barrage of negative media attention directed at Facebook following the 2016 presidential election, the tech giant announced in June of last year that it was entering the cryptocurrency market. This new digital currency, known as Libra, has already come under intense regulatory scrutiny. In addition to more traditional concerns about the role of the currency vis-à-vis international monetary policy, Facebook’s new venture may present major competition concerns in both the United States and Europe that should be examined fully.
To understand the competition risks associated with Libra, it is important to explain the basics of the currency. Libra will be backed by a basket of real assets—a mixture of bank deposits and short-term government securities according to the official white paper—making it a so-called “stablecoin,” or a type of cryptocurrency backed by actual assets so as to limit its volatility. Facebook has emphasized this low volatility throughout the initial media blitz. The company has pitched it as a practical medium of exchange for marketplace transactions as compared to high volatility cryptos like Bitcoin, which investors have been mostly unwilling to use as legal tender.
An association of corporations and nonprofit organizations will oversee the currency. Founding members of the Libra Association, which will itself be a nonprofit entity, include Facebook’s subsidiary Calibra and other major tech players like Uber, Lyft, and Spotify. Membership in the association is predicated upon a minimum $10 million buy-in. Association members will earn interest from the basket of assets that back the currency in proportion to their initial investment. While Libra will use blockchain technology like rival cryptos, the currency will run on a “permissioned blockchain” that will only allow members of the Libra Association to validate the ledger. Bitcoin and other digital currencies use an open access “permissionless blockchain,” allowing anyone to examine and validate transactions. Facebook has maintained that Libra is intended to switch to a permissionless blockchain once it is appropriately scaled.
The announcement of Libra immediately raised regulatory concerns both in the United States and abroad. Government officials expressed fears that a privatized cryptocurrency could shake the foundations of global monetary policy and risk displacing state-backed currencies as the basis of the world economy. Additionally, early critics have harped on privacy risks, the potential for money laundering, and the use of Libra by criminal syndicates. All of these concerns present hurdles that Facebook and the Libra Association will have to clear before becoming a truly global currency. For some early association members like Paypal, Stripe, Visa and Mastercard, these obstacles appeared too costly. They have since left the association. Yet Facebook and the remaining members have forged ahead and they have been joined by new partners along the way, like Canadian e-commerce company Shopify.
The differing competition regimes in the United States and the European Union, with their sometimes divergent goals, could stymie the global ambitions of the Libra Association. Generalizing broadly, American antitrust laws focus on promoting economic efficiency and consumer welfare. It is a truism of antitrust jurisprudence in the United States that the nation’s competition laws are “to protect competition, not competitors.” As a result, the American antitrust laws are more tolerant of highly consolidated industries if market dominance was not ill-gotten through anticompetitive means. The competition laws of the European Union are less laser-focused on economic efficiency as the true measure of robust competition. However, it is possible that Libra could run afoul of both systems in different ways.
The structure of the Libra Association and the role that some of the founding members play in the economy may lead to inherently anticompetitive behavior. Presumably association members hope to see a return on their initial investment. The existing membership may be tempted to limit entrance by new members to increase their share of the pie. Furthermore, Facebook is a major advertiser. One could imagine a world in which Facebook makes the ability to advertise on Facebook or Instagram contingent on a company’s acceptance of Libra. The end result would be a group of companies that have been coerced into adopting the currency without seeing any direct returns. All the while, these companies would potentially be feeding consumer data directly back to the members of Libra Association, which is increasingly seen as an important asset in its own right. Such behavior could encourage creative litigants to file an antitrust claim against the Libra Association, perhaps on a theory of tying or a refusal to deal. However, the Supreme Court’s antitrust jurisprudence over the last few decades has significantly limited these theories of liability, diminishing their likelihood of success. This is especially true after the Court’s landmark decision in American Express v. Ohio, which many commentators have read as a potential limitation on the antitrust liability of major tech firms.
The Libra Association could face tougher competition scrutiny in the European Union. In August 2019, EU enforcers sent an initial questionnaire to the Libra Association that reflected their concern that Libra could be used to exclude rivals. The EU’s tough stance against Big Tech in recent years is largely attributable to its attitude toward data privacy. Competition laws could be conscripted for use in the EU’s ongoing data protection crusade. There are indications that EU regulators may also have their crosshairs trained on Apple Pay. Clearly, there are worries that these payment systems could lead to anticompetitive conduct as well as the amassing of troves of consumer data.
The proposed Libra currency raises many regulatory red flags. The Libra Association, with Facebook at its helm, will have to clear many obstacles before launching the coin. While antitrust concerns may not seem obvious at first, it is clear that Libra may run afoul of both the American and European Union competition regimes, further hindering its ability to become a global currency.