By
Godfrey Benjamin
April 2nd, 2024
The Libra Association confirmed that it will abandon its original vision of a global stablecoin pegged on a multiple national currencies and go for many stablecoins each representing a fiat currency.
The Libra Association confirmed that it is pulling away from its original vision of a global stablecoin pegged on a basked of national currencies. The move was taken to appease global regulators who have criticized and violently opposed the project ever since it unveiled its whitepaper last year. This consortium was set up by Facebook and it now states that it plans to develop several stablecoins to represent different fiat currencies. One Libra coin could be pegged to the Euro, another to the U.S. dollar, and so on. Libra still plans to issue a multi-currency stablecoin. However, it would be backed by the new stablecoins but not by fiat currencies directly.
Notably, the new model will limit Libra’s flexibility since removing or adding a currency from the basket needs retiring or issuing of another digital token.
Libra Coin Opposed
These traditional financial institutions opposed Libra’s original plan. They did so partially because they were afraid that it could undermine and eventually dismantle their monetary sovereignty.
Initially, the Libra Association included 28 organizations. They were tech giants, credit card companies, and venture capital firms. All of these firms were inspired by blockchain technology created by Facebook and designed to open up global payments while emphasizing the developing world.
Nevertheless, Libra’s model attracted regulatory backlash coming mostly from the developed world.
New Stablecoins from Libra
Libra will now strive to make the existing currencies easier to use both internationally and P2P. Libra will insist on several stablecoins backed by sovereign currencies. A cover letter attached to the revised Libra white paper released on April 16 confirm widespread objections from the policymakers:
“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 (≋LBR) 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.”
Libra plans to work with the British Pound, the Euro, U.S. dollar, and the Singapore Dollar.
A multicurrency libra coin (≋LBR) will persist. But, it will just ever include a combination of the stablecoins implementing a strategy similar to the International Monetary Fund’s special drawing rights. Disparte also acknowledged that ≋LBR “will not be a separate digital asset from the single-currency stablecoins.”
Stablecoins Are Successful
One Silicon Valley crypto investor anonymously acknowledged that stablecoins have already proven to be a major success. For instance, one of Ethereum’s primary use cases has turned into moving stablecoins around.
It now appears inevitable that major currencies like the dollar and Sterling Pound will become digital. The investor said that some governments may find it better and effective to outsource digitalization work to entities like Libra instead of doing it locally.
According to the investor, the main issue will be whether partners may want to stay engaged in a project whose business model is mainly based on severely conservative returns in a space where interest rates are almost 0% in a post-COVID-19 environment.
The revised white paper highlights that the new roadmap will be more compliant with regulatory recommendations. It was written based on the guidelines given by the Financial Action Task Force (FATF). It will limit what people and unregulated entities can do on the network. The FATF formalized its guidelines for crypto businesses just three days after Libra was introduced last June.