Facebook scales back global currency plans

In an updated version of its white paper, released today, the Libra Association says it is scaling back its initial plans for a global payments medium and instead focusing on single-currency digital tokens, or ‘stablecoins’.

The Libra Association was set up last year by Facebook and a consortium of other firms to launch a new digital currency with global appeal, also called Libra.

Stablecoins are designed to maintain their value against individual fiat currencies, such as the US dollar, euro or pound. They can be moved easily from one mobile-phone-based digital wallet to another.

Nine months ago, Facebook’s CEO, Mark Zuckerberg, said Libra would be available to the general public and the 2bn-plus users of Facebook’s social networks, which include WhatsApp, Messenger and Instagram.

Libra is now run by an association of 22 members, including Facebook, Uber and Spotify.

Late last year several founding members of Libra, including Visa, Mastercard, eBay, Stripe, Mercado Pago and PayPal, quit the project under pressure from financial regulators.

Governments around the world have so far blocked Libra’s introduction, with some citing national security concerns as a reason for the veto.

In September, France’s finance minister slammed Libra for encroaching on a key area of national power.

In its latest white paper, the Libra Association says that as well as introducing single-currency stablecoins, it will build in its own compliance technology, forgo its original plans to become a ‘permissionless’ cryptocurrency like bitcoin, and at the outset only deal with pre-approved companies, such as exchanges or custodians.

In a permissionless cryptocurrency, anyone can join, mint new currency, transact and act as a record-keeper for the network. Under its new plans, Libra will allow only trusted validators to approve transactions.

“These are big changes, addressing the concerns raised by regulators”

“By undertaking the difficult work of enhancing traditional financial systems to become programmable, interoperable, and upgradeable, we hope to allow others to leverage our efforts to build innovative but also safe and compliant financial applications that can serve everyone,” the Libra Association said in a statement.

Libra says each of its single-currency stablecoins would be backed by a reserve, which will consist of cash or cash equivalents and very short-term government securities denominated in that currency.

According to Tom Robinson, co-founder of Elliptic, a forensic software firm focusing on crime in cryptocurrency networks, the Facebook-backed project has made significant concessions to try and gain government approval.

“These are big changes, addressing the concerns raised by regulators. The challenge for Libra now is to work within these self-imposed restrictions to meet their goal of creating a more inclusive financial system,” Robinson wrote on LinkedIn.

As Facebook and its Libra coalition try to get the new digital currency off the ground, the market for less-regulated stablecoins run on cryptocurrency networks is booming.

According to Messari, a cryptoasset research firm, Q1 2020 was stablecoins’ best quarter ever.

Driven by a global flight to safety amidst the coronavirus pandemic, stablecoin issuance ballooned over $8 billion in the quarter, said Messari. The action was so dramatic it shook the prevailing order in cryptocurrencies.

Tether, a popular unregulated stablecoin whose issuer has been accused of fraud by the New York Attorney General, has recently seen its market capitalisation grow to over $6bn, up 300 percent from a year ago.

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