Since its announcement in June 2019, Facebook’s Libra project has come under constant attack from governments and financial authorities around the world. Faced with this opposition, Facebook has updated its whitepaper; Libra is now intended to be a closed payment system and would opt for the creation of multiple stable coins, each of which would be backed by a fiat currency.
What is a stable coin?
In a previous article, we detailed the purpose of these tokens and their potential use and utility: “Pay with non-volatile digital currency? Zoom in on Stable coins”.
Originally, the project Libra consisted in becoming a new cryptocurrency-based financial service that could cross borders and potentially become a new currency heavyweight, especially in developing countries that do not have access to banks or financial services. It will enable anyone to save, spend and send money on Facebook’s network.
A comeback with several coins and less ambitions
The state and regulatory pressures on Facebook’s Libra are proving to be important that the association has changed its nature to be accepted. It has been attentive and its Plan 2.0 contains a number of fundamental changes that should, to a very large extent, address the fundamental concerns raised. The 20 or so member companies plan to work with those states that have or are developing their own digital currency.
The Libra project is now intended to be a more traditional payment network, thus making use of electronic money. The white paper of Facebook’s stable coin has just been modified on the Association Libra website. So, instead of a single global stable coin backed by a fiat basket of currencies, some of these currencies will now be the subject of a new full-fledged Libra stable coin. Another important change regarding this stable coin is that the Balance also plans to strengthen safeguards against money laundering or terrorist financing. The Association will register with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) as a money services business, a move that will be accompanied by enhanced record keeping and reporting requirements.
Members explained that they wish to set aside their plans for a global stability coin, so as not to compete with sovereign currencies or interfere with monetary policy. In other words: the Original Balance will get the EUR-Libra, USD-Libra and SGD-Libra. These local currency versions fit much more easily into the national monetary, financial and regulatory framework and do not pose a direct threat to monetary autonomy. That said, a successful Libra network could still influence financial stability.
According to the association:
“This will allow people and companies in regions with stable coins in local currencies on the Libra network to have direct access to a stable coins in their own currency. Each single currency stable coins will be fully backed by the reserve, which will consist of cash or cash equivalents and very short-term government securities denominated in that currency. »
Still an unpleasant feedback?
It’s probably coincidental, but the Financial Stability Board published a consultation on global stable coins just some time after the changeover. Does the draft still not seem to be sufficient in the eyes of some?
Just a few hours after the Libra Association announced the changes, a member of the US Congress — Sylvia Garcia — explained that in her view these changes do not call into question the classification of Libra as a security.
“I will continue to work to ensure that the SEC (Securities & Exchange Commission) regulates any such asset as the security it is under current securities laws”.
Yet the project has even shown that those who abandoned the project did so too quickly. For them, it is crucial that the Basket Balance version of the world currency is not out of the picture. In addition, Facebook and its members hope to be able to launch their payment network as early as this year. According to a statement by the association to journalists, it will be launched more precisely between mid-November and December this year.
Written by: Laetisia Harson