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The World of Libra, its Supporters and Opponents

From enthusiasm to much hesitation, the world is divided on the stablecoin presented by Mark Zuckerberg on June 2019.

by Evita Comes
12 February 2020
5 min read
by Evita Comes
12 February 2020
5 min read

“Transform[ing] the global economy so people everywhere can lead better lives.” With these words, Mark Zuckerberg turned the spotlight on Libra, the stablecoin cryptocurrency designed by Facebook. The CEO and inventor of the most revolutionary social network of our time is probably envisaging the lives of people freely sitting on their couch or on the subway completing online purchases on all kinds of digital platforms. In this case where Libra can be used on Facebook, Messenger and WhatsApp, we are dealing with a potentially global currency that can facilitate the exchange of money between all users of these platforms, therefore among billions of people.

If we take a small step back, we can understand the nature of the Facebook currency a little better. It is a stablecoin, a type of stable cryptocurrency not at the mercy of the financial markets and which is firmly tied to the value of the dollar. This assumption provides for easy exchanges and removes the value of the currency from the ups and downs of the cryptocurrencies market. In recent years, that same market has in no way been generous with Bitcoin. Stability is therefore the most advantageous feature of Libra because it makes it usable without risk for the exchange of goods and services and protects the buyer and seller against the possibility of losing their money. In this respect, however, the currency does not remain infallible. In fact, even the dollar, to which it is anchored, is itself subject to market fluctuations despite being less and less eventful than the fluctuations of Bitcoin.

Libra is therefore a collateral stablecoin in a trustworthy currency. It is issued only as a result of a deposit, to guarantee the issuance of a quantity of a legal tender currency, in this case the dollar. The difference is based on this guarantee from its “sisters”, the stablecoins whose collateral is supported by other cryptocurrencies and those that are not collateralized. In the latter case the currency is not supported by other resources and is managed in an encrypted environment where, if the price goes up, more tokens are minted, and, if it goes down, part of the existing currency is bought back and destroyed.

In addition to stability, the benefits of Zuckerberg's currency have also been supported by additional factors. Libra is a global currency and its use is not restricted by the banking circuits. Instead, it goes beyond and allows people without a bank account to make online purchases and payments.

Finally, as the offspring of a web giant, it has been quick to attract the right allies. Its partners include the likes of PayPal, Uber, Vista and MasterCard, as well as Spotify, eBay, Vodafone, Andreessen Horowitz, Coinbase, Iliad, Women World's Banking, Kiva, Booking Holdings, Farfetch, PayU, Mercado Pago, Creative Destruction Lab, BisonTrails, Xapo, Anchorage, Breakthrough Initiatives, Stripe, Lyft, Thrive Capital, Ribbit Capital, Union Square Ventures and Mercy Corps. This list of brands offers guarantees and greatly expands the scope of the currency, its services and as always, the potential customer base.

A Newborn with Many Enemies

Libra was targeted at the G7 summit in Chantilly. Among the various positions in the political and financial world, they reflected the doubts exposed by the French Finance Minister Bruno Le Maire who fears the sovereignty of Facebook and a possible financial bubble reminiscent of the 2008 crisis. While more moderate, Mark Carney, the Governor of the Bank of England, spoke of the need to attentively regulate the project, perhaps believing it was unconstructive to close its every door. The two-day meeting in Chantilly ended with a judgment that currencies such as Libra can only be developed if a series of “pallets” are respected. It has been agreed that online payment arrangements need to be improved in many areas of the world, including using stablecoins, but they need to demonstrate their reliability. They must be supervised and monitored, a solid legal basis created in all jurisdictions, the risks managed and the underlying assets—real currency deposits—checked.

Libra is therefore leaving itself open to stances expressing concern about a new and uncontrolled digital tool, especially if this tool has been created by the leader of the social networking world, one with 2.4 billion users. Another hot topic is privacy, which has already been discussed elsewhere but continues to shake up politicians and economists. Donald Trump declared on Twitter that he is “not a fan of Libra and other Cryptocurrencies” and “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations.” The Paris Central Bank (BdF) has expressed the need to match innovation with regulations, while the Financial Conduct Authority (FCA), the UK financial regulator, wonders how it should be processed and considers detailed discussions and analysis to be vital.

Germany, in the statements of Jens Weidmann, president of the Central Bank (the Deutsche Bundesbank), opts for a more open-ended position, considering it attractive to consumers. Finally, the rest of the world is divided between those who fear it, for example Japan, those who have moved to complete the development of their own cryptocurrency, such as China, and those like Russia who are planning to legislate on digital financial assets.

Despite prospects of a bright future, Libra is being prepared for a planned launch in 2020, managed completely and separately by the non-profit Libra Association, which was founded to work on the cryptocurrency and to gather all Libra’s partner “friends,” who can clearly rest on their laurels without watching their backs too much.