Since its emergence, the digital payments project has drawn a steady stream of criticism from regulators and government officials across the world with some organizations even calling for measures to tightly regulate global stablecoins.
Countries like China have also moved forward with plans to launch their own sovereign digital currency in response to Facebook’s Libra project with reports of testing already underway in four cities across the country. Stakeholders in Asia Pacific, Europe, and the United States are also calling on their respective central banks to begin working on modalities for their own central bank digital currencies (CBDC).
Libra to Use Single Currency Stablecoins Plus Libra Coin
Tweeting on Thursday (April 16, 2020), the Libra chief revealed a few adjustments made to the project since the release of its white paper back in mid-2019. An excerpt from the Twitter thread detailing the most significant updates reads:
“The creation of single currency stablecoins, e.g. ≋USD, ≋EUR, ≋GBP, in addition to Libra Coin (≋LBR), which will now be a Move smart contract “stitching” together fixed nominal weights of underlying stablecoins.”
Most notable evolutions are:
a) the creation of single currency stablecoins, e.g. ≋USD, ≋EUR, ≋GBP, in addition to Libra Coin (≋LBR), which will now be a Move smart contract “stitching” together fixed nominal weights of underlying stablecoins. 3/8
— David Marcus (@davidmarcus) April 16, 2020
The original Libra plan had been a single Libra Coin backed by a basket of fiat currencies held in bank accounts. Government regulators faulted this model as having the potential to pose serious risks to the ability of countries to dictate their own monetary policies.
The new operating infrastructure significantly reduces the flexibility of Libra’s tokenomics, preventing instances of “new money creation” as detailed the following excerpt from the updated white paper:
“Each single-currency stablecoin will be supported by a Reserve of cash or cash-equivalents and very short-term government securities denominated in that currency and issued by the home country of that currency. Single-currency stablecoins will only be minted and burned in response to market demand for that coin. Because of the 1:1 backing of each coin, this approach would not result in new net money creation.”
Marcus also revealed the project was firming up its anti-money laundering (AML) protocols to be more in line with international finance standards. Also, the Libra chief revealed that Facebook’s funding for the project has been diluted to less than 10%.
Back in 2019, several government figures identified Facebook’s role in the Libra Association as a potential problem given the global reach of the social media giant. Back in mid-October 2019, the Libra Association was inaugurated with 21 founding members, including Coinbase, Andreessen Horowitz, and Uber.
Regulators Coming After Stablecoins
Before the inauguration, several early backers like PayPal ditched the Libra Association following negative reactions from regulators. As previously reported by Blockonomi, Ripple CEO Brad Garlinghouse remarked in October 2019 that Libra will struggle to launch within the next three years.
Libra’s tweak to its operational framework comes at a time when regulators are focusing more attention on global stablecoin projects. In April 2020 alone, the European Parliament and the G20’s Financial Stability Board (FSB) have issued reports calling for greater policing of stablecoins.
For the FSB, a unified approach to regulating stablecoins has to replace the current patchwork of laws in different jurisdictions to prevent the emergence of regulatory arbitrage which can be exploited by rogue actors.
China’s progress on the CBDC front has also sent shockwaves among other major economies and geopolitical blocs. Lawmakers in Japan are making the case for a crypto yen in response to China’s digital yuan while the U.S. Federal Reserve says there are discussions underway about the possibility of a digital dollar.