DFC

The reserve isn’t quite as great as it seems, though. Like a money-market fund Libra has no capital and no deposit insurance, so any drop in the value of the reserves should mean the value of Libra falls. Losses from fraud, mismanagement or default within the reserve fall on Libra holders, unlike with a normal bank account or bank note.

To understand how early investors in Facebook’s new Libra blockchain will make money over time, it helps to dig into a new lossless lottery called PoolTogether. Its similarity to Libra is not a completely one-to-one, but the key insight of both is the same: Earning interest on your own money is good, but it’s better to also earn interest on other people’s money.

While the initial design calls for 100% reserves in developed country currencies and government debt, that’s illusory, since Libra’s controllers can change the investments at any time. Any country that allows inflation or issues dubious debt can find its currency and debt dropped from reserves. Moreover, a successful Libra would likely switch to a fractional reserve system, with only enough national currency reserves for liquidity purposes, and currency backed either by loans and other risky assets, or nothing at all.

The BIS has cautioned that Libra’s misuse of that data could have “adverse economic and welfare effects”. Companies could, for example, exclude high-risk groups from socially desirable insurance markets, or price discriminate by working out the maximum rate a borrower would be willing to pay for a loan.

The job description gives some specifics on Facebook’s ambitions regarding the future developments of Calibra, including expanding to online and offline commerce and eventually lending and personal financial management.

The BIS report's key point is that the entrance of big tech into finance promises all sorts of efficiency and financial inclusion gains — which is a good thing — but those gains mustn't come at the cost of other things like privacy, financial stability and market competition.

Facebook’s announcement speaks to progress about private measures used to facilitate exchange, along with acknowledgement that money is best and most circulated when its value is broadly agreed to thanks to stability of the value. The Libra has the potential to mark the start of something because if widely used, it will open the eyes of the global population to a truth about money: it works best when its value is stable, plus it needn’t be a government creation.

It is easy to imagine a scenario in which rescuing Libra could require more liquidity than any one state could provide. Recall Ireland after the 2008 financial crisis. When the government announced that it would assume the private banking sector’s liabilities, the country plunged into a sovereign debt crisis. Next to a behemoth like Facebook, many nation-states could end up looking a lot like Ireland.

Libra’s main stated mission is to service the world’s poor and unbanked. Facebook’s source for the 1.7 billion figure is the World Bank’s Global Findex Database 2017. Findex also believes that 1 billion of these have mobile phones and 500 million have internet access. However, Findex also says that over half of the 1.7 billion come from just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan. More than half of these are in places where cryptos are banned, Facebook can’t freely operate, the country is under heavy FATF restrictions, or it faces other limitations.

Fitch ratings believes that Libra represents a step toward a potentially viable cryptocurrency. It incorporates and improves upon elements of existing blockchain technology, while resolving certain inherent drawbacks, such as price instability and governance challenges. Libra also seems to be designed with regulatory acceptance and lawfulness in mind.

JPMorgan Chase is to start trials of its “JPM Coin” cryptocurrency in conjunction with corporate clients.

Economist Stephen Moore, who recently lost out on a bid to join the board of the Federal Reserve, is joining the "Decentral" algorithmic stablecoin team. Decentral bills itself as “the world’s decentralized central bank.”

Thomas Moser, alternate member of the Swiss National Bank governing board, suggested that Facebook’s recently announced cryptocurrency project, Libra, is not ruffling any feathers with the regulator (“I think it’s an interesting development and I’m pretty relaxed about it”).

François Villeroy de Galhau has announced the launch of a G7 task force that will investigate the impact of stablecoins. It will investigate issues such as the definition of “stable”, what constitutes a stable basket, and whether peg has to be fully fixed or flexible. It will also examine issues related to anti-money laundering, consumer protection and operational resilience, plus any possible impact on the transmission of monetary policy. De Galhau added it would be important to improve existing payment systems, especially where they operate across borders.

The Financial Services Committee will hold a hearing on Facebook’s Project Libra on July 17. The Senate Banking Committee will hold its own hearing on the social media giant’s crypto project the previous day.

Martin Wolf: "At worst, the world might have a Facebook-dominated mono-bank. The risks of that are huge: potential monetary and financial instability, concentrated economic and political power, lack of privacy and many other issues."

Neutral’s stablecoin basket instrument has added a new layer or reliability and security to the space. By combining stablecoins together, represented by one overarching coin, Neutral reduces the overall risk exposure to one individual coin’s volatility and can produce a more stable token that fluctuates more closely to the intended value.

Libra’s partners signed nonbinding agreements to join the effort partly because they knew they weren’t obliged to use or promote the digital token and could easily back out if they didn’t like where it was going.

The vast majority of money moving into bitcoin is coming from Tether, a stable coin used by traders to hold crypto at a stable value.

Facebook’s Libra cryptocurrency has taken a lot of criticism from Western government officials and media commentators – but it’s not meant for them. A major target market for the Libra is users in developing countries.

"Facebook need not create a new bank. And it might avoid banking regulation. But its goal would still be achieved: the power of the state to manage the economy of a nation could be critically undermined in those places where it still exists by the existence of its currency. And, I would suggest this is precisely what the goal of this policy is.

"We expect that the evolution of payment infrastructure will accelerate. All actors are grappling with what is at stake. For governments and central banks, regulating this transformation will be a prerequisite to avoiding a possible privatization of monetary policy, and for banks and other financial services providers, keeping up with evolving customer preferences and further adjusting the pricing of payments and transfers appears unavoidable."

"This article is about: 1) Understanding the investors and people around this project, 2) Understanding the technology of Libra, and 3) Some possible future implications in Bank, Crypto and Financial industries.

Tether is a hybrid crypto-fiat “stablecoin” whose value is pegged to the value of the U.S. dollar and other fiat currencies. It is a cryptocurrency asset issued by Tether Limited, and it operates on the Omni protocol as a token issued on the blockchain. As a rule of thumb, every Omni transaction (Tether inclusive) is recorded in a Bitcoin transaction sharing the same transaction hash.

TrueHKD is the first major expansion for TrustToken into the Asian market after launching TrueUSD, TrueGBP, TrueCAD, and TrueAUD with custody providers based in the US.

Using algorithms to analyze blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. The flow is attributable to one entity, clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests insufficient Tether reserves before month-ends.

Facebook published plans for the Libra cryptocurrency in seven languages, including Indonesia’s Bahasa – a move that offers perhaps the clearest glimpse of what Facebook’s fintech ascent might look like.

Facebook’s Libra white paper includes a brief but potentially seismic nod to digital identity standards. With 2 billion users worldwide, Facebook may be able to succeed where others have failed in jump-starting a globally accepted digital ID. Some identity experts say this is even more important than the cryptocurrency, but others question how much control Libra would give users and find its approach overbearing."

The payment system remains one of the last true monopolies of a modern economy. Financial technology startups and cryptocurrencies have all sought to bust up that monopoly. With its new digital currency, Libra, Facebook may actually succeed by doing what none others have: by creating a de facto central bank to issue it.