1. What is Libra?
A set of digital coins that, according to Facebook, initially would just allow their users to send or receive money or pay for things within the social network but could eventually be used for transactions outside it as well. Balances and transactions would be run on a blockchain, a shared digital ledger run by members of the Libra Association that oversees the effort that Facebook started. The association initially included partners such as Mastercard Inc., PayPal Holdings Inc. and Visa Inc. In October, however, these three high-profile companies and several others pulled out amid a regulatory backlash. In April 2020, the Libra Association said it still hopes to launch late in the year, and is applying for regulatory licenses.
2. How would I use Libra?
Facebook is creating an electronic “wallet” called Calibra that members could use to buy Libra with local currencies; several rival products are in the works as well. How many Libra users receive in exchange could shift from day to day, but in theory not by much, as its “stablecoins” are designed to avoid the huge price swings that have made Bitcoin and many other cryptocurrencies all but unusable for real-life transactions.
3. What would keep Libra’s price steady?
Stablecoins often peg their value to that of another asset, one with relatively low volatility. Many of them back up the value of their coins by holding reserves of that asset -- the way government-issued currencies once were backed by gold. The most popular stablecoin to date, Tether, is pegged to the U.S. dollar; its price in dollars typically varies only by a few cents.
4. Is that how Libra would work?
In April, the Libra Association said it will offer a slew of stablecoins tied to individual countries’ fiat currencies, as well as a coin tied to a basket of these single-fiat stablecoins that could include the dollar, euro, pound and yen. The exact fiat currencies that Libra will roll out stablecoins for haven’t been disclosed.
5. What’s the appeal for users?
The main service described by the Libra Association, sending money “as you might send a text message,” is already offered by plenty of other companies. It’s possible that using a blockchain could allow Facebook to handle transactions for the world’s 1.7 billion adults without a bank account more cheaply. In countries with high inflation, such as Venezuela, buying a Libra coin could be a way for people to safeguard the value of their money.
6. Why is Facebook doing this?
Its revenue growth has slowed, and Libra could unlock new opportunities in payments and commerce. Facebook’s partners have their own motivations, but they are having to weigh potential scrutiny from politicians and regulators.
7. What makes stablecoins important?
Stablecoins are seen as a bridge between crypto and traditional currencies because they make it easier to convert one into the other. JPMorgan Chase & Co. is developing a stablecoin (called JPM Coin) for its clients to use in making payments to each other; it thinks stablecoins and blockchains will eventually outperform traditional payment systems. Libra has raised the concept’s profile.
8. What are regulators upset about?
Libra’s potential for use in money laundering, among other things. And Facebook’s proposal came on the heels of a string of scandals involving its misuse of data and infiltration by Russian bots during the 2016 U.S. presidential campaign. But their chief worry has been the possibility that Libra -- initially envisioned by Facebook as a single coin backed by fiat and securities reserves, a concept that has since been scrapped -- could be so big that it could make it hard for countries to manage their own currencies. The latest tweaks to Libra’s design are likely a move to make sure that the U.S. Securities and Exchange Commission won’t label Libra coins securities -- tradable financial assets rather than a currency; that would add layers of complexity that could be a potential death knell for the project.
9. What else do central bankers say?
The debate has led a number of central banks, including China’s, to highlight the work they’ve been doing on their own digital currencies. And Mark Carney, head of the Bank of England, cited Libra while discussing problems caused by the U.S. dollar in its roles as the world’s unofficial reserve asset and as the most common medium of international trade and finance -- a combination that gives it extra strength, especially in downturns, hurting the users of other currencies. Carney said a solution could be the creation of a new reserve asset he described as “an international stablecoin fully backed by reserve assets in a basket of currencies.” Meaning that it might be very much like Libra -- except controlled by central banks instead of an association of companies that includes Facebook.
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