PMI #MIP2020 | Libra
For pushing digital currency into the mainstream
The mere announcement in 2019 of a cybercurrency from the world’s largest social media network generated big buzz—and big resistance. But with 31 percent of the world’s adults currently unbanked, it’s not hard to see why Facebook was eager to step up with a blockchain-based solution.
Unlike other digital currencies, each Facebook Libra coin is planned to be backed with a reserve of assets: cash (or cash equivalents) from several countries and very short-term government securities. And unlike the open Bitcoin protocol that allows anyone to “mine” coins, Facebook’s system calls for transactions to be cleared by a small group of preapproved organizations known as the Libra Association, based in Switzerland. Libra also claims it will be much faster: Facebook’s technical white paper says even the initial launch of Libra will support 1,000 payments per second, making it around 140 times more efficient than Bitcoin.
Despite the promise, the Libra team has encountered serious challenges since development began in earnest a year ago. Economists and political leaders have expressed fears that Libra could become a shadow currency beyond the reach of traditional governance. When Facebook announced Libra, U.S. Federal Reserve Chair Jerome Powell said the project raised “serious concerns” for regulators.
Many early corporate backers dropped out after the backlash, including eBay, Mastercard, Visa and Mercado Pago. To appease regulators (and Libra Association heavy hitters like Uber, Spotify, Andreessen Horowitz and Shopify), the team tweaked the platform to support multiple single-currency coins. The original plan had called for a single global currency pegged to a “basket” of fiat currencies, like the U.S. dollar, and securities like U.S. treasuries. But in April, the team pivoted to digital “stablecoins” that will be pegged to individual fiat currencies—one for the U.S. dollar, another for the British pound, and so on. Now, Libra coin value would be tied to a mix of those underlying stablecoin values.
A sure sign that Libra is on to something: It’s spawning imitators. A Chinese privately led consortium announced the creation of an East Asia cryptocurrency scheme backed by a basket of the Chinese yuan, Japanese yen, South Korean won and Hong Kong dollar. Seeing Libra as a rival, China accelerated studies on a digital version of its currency last year, with the new plan signaling a move to a public private collaboration aimed at creating a cross-border cryptocurrency with the yuan at its core, according to reports in the Nikkei Asian Review.
With Facebook banking on an end-of-year debut for Libra, the race for a global digital currency frontrunner is officially on.