[Insight] Dream of Libra
After many twist and turns, Facebook’s Libra is about to be released in next year. Though Libra gathered a worldwide focus when it threw an ambitious challenge last year, yet it had to continue its tactical withdrawals due to the containment policy from both the politics and the financial authorities. The first issuance of Libra token will be in January 2021, according to the news from Financial Times (FT), the most popular business magazine in the world, and that is quite a reliable report.
The headquarter of the Libra Association that will issue and manage Libra is in Geneva, Switzerland. At their first release, Libra Association will issue Libra token in a form of stablecoin, which will have USD 1 fixed-value per token. And currently, they are waiting for approval from the Financial Market Supervisory Authority (FINMA), the financial authority in Switzerland, for their payment service.
In June 2019, Facebook, one of the world’s largest social media that have 2.5 billion users worldwide, hung out an ambitious slogan saying, “By providing usable and simple form of currency and financial infrastructure, we shall bring financial freedom to everyone in the world.” So, the fact that Libra token will be issued in USD-based stablecoin must be quite frustrating news for those who remember it.
It is widely known that after the first announcement of the white book, Facebook received a huge-scale of containment and criticisms from the U.S. government and parliament, as well as from the financial authorities worldwide and the existing financial world. So they had to cancel the Libra Project for some time. And after the unrecorded pandemic disaster of CORVID-19 in April, when the digital asset draws attention, they released 2.0 version of the white book in an attempt for change.
In this 2.0 version, Libra promised that they will not dream of becoming the one and only currency that replaces the legal tender. The announcement meant that they will give up their challenge against the traditional financial system built on the basis of central and commercial banks. Instead, Libra tried to remodel itself as a new e-payment system to respond to the increasing non-contact demands due to CORVID-19.
And most importantly, Libra coin was designed as a stablecoin to reduce the price variability in the first place. For the preparation to stabilize Libra coin’s value, they decided to save preliminary funds called Libra Reserve. This reserve fund will be gathered by the payments from Facebook and global enterprises taking part in Libra Association as an investment and will be consisted of legal tenders such as USD, EUR, GBP, and JPY, etc., as well as bonds from advanced countries. And in 2.0 version, Libra decided to make this reserve fund by issuing various stablecoins that are linked to currencies of each countries, such as USD, EUR, GBP, and SGD, etc.
The problem is that, according to the reports from Financial Times, Libra will be a stablecoin linked to the USD only, not the stablecoin based on currencies of various countries that will be interchangeable in the U.S., Great Britain, Europe, Asia, etc. If so, the regional base for using Libra will be restricted, and their primary plan of making money transfer between nations without exchanging currencies of each country possible will become far from achievement as well. Especially since there are many USD-based stablecoins in issuance and circulation, Libra will be unable to make any differentiated point.
For this reason, Libra Association, currently developing Novi, a digital wallet for depositing Libra, also did not release it for the entire world but decided to present it only in the U.S. and some of the countries in Central and South America. Financial Times also said that companies taking part in Libra Association, such as Uber or Spotify, also seem to take a wait-and-see approach for the release and usage of Libra, so it is possible that other companies may break away from the association.
Well, of course, Libra says that it can reveal other stablecoins that are linked with EUR, JPY, and SPD, as well as other tokens that are linked to this currency basket, but it seems uncertain. Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), actually pointed out that, “Stablecoins are not protected under the depositor protection scheme and are difficult to be maintained when users expect a decrease in their prices. In particular, passing information of European citizens and companies to the U.S.-based IT firms such as Facebook could be a huge problem, and it will not be easy to force Facebook to comply with the Data Protection Act in Europe,” saying that they cannot accept Libra, so the approval from Europe is likewise unclear.
Fortunately, in the U.S., the Securities and Exchange Commission (SEC) made authoritative interpretation regarding VCOIN that the token can be issued in the U.S. without being reported as security. So there are expectations that libra can be issued and used in the U.S. with no strong regulations, but this is also uncertain.
However, Facebook has obtained a large pool of users beyond measure already, which means they got strong supporters than any other stablecoins. So we cannot underestimate the impact and influence this may bring. Also, even if they become a local stablecoin, it may be utilized in countless ways if they can only cooperate with a central bank digital currency (CBDC) issued by the central bank of each country. But the most important thing right now is that the token should be released in January 2021, even in a downscaled form. It will be hard to forecast what kind of turning point the release of Libra coin will become in the context of digital transformation.
*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.
*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.
