Facebook, a world leading social media network, is expanding to become a bank. Elizabeth Cobbett argues that this has far reaching social, economic and political consequences.
Facebook, the social network connecting family and friends around world, is developing a new set of networks, financial ones. The company has just applied to Ireland’s central bank for a permit to act as a financial institution.
How can a social media company act as a bank? Facebook will store money deposited by its account holders and transfer funds from one Facebook member to another. This arguably offers a practical and alternative banking system for those who do not have a bank account or who want to send money to families back home. But Facebook’s decision to offer financial services raises a whole host of important social and political questions, one of these being the change in the state control of the creation, implementation and use of money.
States have the monopoly to make money and control currencies. The territory of money roughly coincides with the political frontiers of each nation state – what is called a currency space. Changes in the geography of money challenge state sovereignty and power. Part of changes upsetting states is that the materiality of banking and finance is radically changing. Something as ubiquitous and global as money is becoming less of a material ‘thing.’
Historically, money has had many forms: cattle, cowrie shells, coins of silver and of gold, paper, and more recently plastic cards. With digitalisation, money is losing its physical form as it becomes virtual. This makes the creation of money through internet possible. Think of Bitcoin, a peer-to-peer currency invented in cyberspace and protected by cryptography and independent of central bank or state authority.
Bitcoin and Facebook are both part of ‘shadow banking,’ financial transactions taking place outside of the traditional and regulated banking sector. Facebook’s latest pursuit to be a financial institution raises a central concern: who will oversee and regulate private financial global networks?
States’ monopoly of the creation, issuance and use of money may very well be slowly eroding as new banking and financial practices emerge. Finance is more and more about global digital processes using latest technologies. E-money is less confined by territorial borders. We can’t see digital money, only manifestations of its movements through networks and transactions. This is where Facebook comes in; it is the master of networks and networking with 1.23 billion users worldwide in 2013. In the US and UK, a third of the population visits their Facebook page every day. Facebook wants to tap into the market of global remittances – workers sending money back home – estimated at $550 billion this year, and set to reach a record $707 billion by 2016.
What impact will these new practices have on state power to regulate money flows, to preserve the value of money through monetary policy and to prevent global financial crises?
Whether it is the invention of new currencies such as Bitcoin or the entrance of transnational corporations such as Facebook into the banking world, an important element of digitalised money is the changing control of public authority over its creation, implementation and use. This has important consequences for the role of money in territorial sovereignty, its role in foreign policy such as the war on terrorism, and as a public good whose value needs to be protected.
Dr. Elizabeth Cobbett is a Lecturer International Political Economy at the University of East Anglia.