Libra recalibrates after regulatory pressure

Consortium shifts to work with states rather than compete against them

The Libra Association has announced a major shift in tack – abandoning its original vision of creating a global stablecoin backed by a basket of fiat currencies – after facing significant regulatory resistance since its launch.

Instead the group hopes to issue stablecoins backed by single currencies and to develop a Libra Coin for use in cross-border payments, which will be backed by a composite of these single-currency tokens.

In the cover letter to the revised white paper, the consortium alluded to the opposition it has faced from states around the world, stating:

“While our vision has always been for the Libra network to complement fiat currencies, not compete with them, a key concern that was shared was the potential for the multi-currency Libra Coin to interfere with monetary sovereignty and monetary policy if the network reaches significant scale and a large volume of domestic payments are made in LBR. We are therefore augmenting the Libra network by including single-currency stablecoins in addition to LBR."

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“Concern” arguably puts the reaction of governments and central banks to the Libra’s initial plan mildly. The prospect of a new means of exchange facilitating cross-border payments, quickly available to Facebook’s ready-made user base of 2.5 billion people, provoked both panic and fury in practically all nations, bar Switzerland where the Association is registered.

The finance ministers of France and Germany issued a joint statement vowing to block the project, stating: “No private entity can claim monetary power, which is inherent to the sovereignty of nations.”

Meanwhile central banks rushed to accelerate their research into central bank digital currencies (CBDCs). In January, Hiromi Yamaoka, a former senior figure at the Bank of Japan, admitted that the increasing collaboration of CBDC research between nations was driven in part “to keep something like Libra in check.”

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These statements, coupled with widely publicised grillings of Facebook executives by US politicians, led to one quarter of the consortium’s initial members abandoning the project, including Mastercard, eBay and Visa.

Christian Catalini, head economist at Facebook’s digital wallet subsidiary, Calibra, maintained: “We’re retaining the construct of a multi-currency Libra, but it’s fundamentally changed, streamlined and simplified relative to the original one.”

A sign that the Association has decided to work with, rather than challenge, nation states can be found in its statement that under its new project governments could “directly integrate” any future CBDCs into its network.

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