Major Credit Rating Agency Fitch Drums Up Support for Facebook’s Fiat-Backed Libra

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by Wanguba Muriuki · 3 min read
Major Credit Rating Agency Fitch Drums Up Support for Facebook’s Fiat-Backed Libra
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Facebook’s Libra cryptocurrency gets backing from a high-ranking entity, Fitch, with the credit rating agency stating that Libra is more secure compared to the other existing virtual currencies.

Last week Facebook unveiled the much-awaited Libra coin whitepaper. The wave of interest in the crypt continues to rise around the world. It seems the big and mighty are joining the party with Libra getting a new and powerful ally in Fitch. The large credit rating agency published its support in a recent report.

The question comes; why is Fitch interested in Facebook’s Libra? It considers the fiat-backed status of Libra as a major security point. This Agency acknowledged in a statement saying:

“A potential advantage of Libra versus other cryptocurrencies is its full backing by a reserve basket of fiat currency assets managed in a reserve fund implemented like a currency board. The size of the reserve fund will be a function of transactional demands, not an arbitrary supply limit or other algorithm as in other cryptocurrency implementations.”

Subjective Supply Limit Impairs Bitcoin

The fact that Fitch writes off Bitcoin’s core concept as ‘arbitrary’ will ruffle feathers in the crypto world. The foundation of Bitcoin is its deflationary quality. To justify the viewpoint, Fitch suggests that Libra will gain in the long-term from fiat backing:

“These measures could preserve price stability, avoiding the speculative nature of existing cryptocurrencies and improving its utility as a medium of exchange and store of value, which is the key to long-term viability.”

Libra Association Targets the ‘Unbanked’

Fitch thinks that Libra will function broadly just like a fiat currency. Thus, it has better functionality than Bitcoin. The underlying concept of Libra makes many analysts like CNBC’s Joe Kernen say that Facebook’s token is not a cryptocurrency. However, the Libra Association has strived to justify its existence well aware of the criticism.

According to Fitch, the Libra Association estimates 1.7 billion adults around the world have limited access to bank services. The association thinks that this unbanked population can be served by Libra with near costless transactions and remittances.

Facebook Must Be Careful

The concept of enhancing financial inclusion prompted Mark Carney of Bank of England to speak. It is evident that Facebook is striving to abide by the set regulations. Mark Zuckerberg strives to not appear as a ‘rogue agent’ as some have labeled him.

As we reported earlier, the US Congress will hold a second hearing on Libra in July. The chairperson of the House Committee, Maxine Waters, called on Facebook to suspend development of their project. Thus, every move the social media giant makes from now on must be well calculated to avoid ruffling the regulators.

Focus on Libra Helps Bitcoin Price

Despite Fitch’s support for Libra and slight fuzz of fully decentralized tokens, the institutional interest in cryptos has helped Bitcoin price to surge. If all FANG companies launch a cryptocurrency, it remains mysterious of how Bitcoin and its limited supply and decentralized nature will survive. Focusing just on Libra, the reaction could be extremely positive.

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