Libra — Concept and Policy Implications

Authors: Jonas Gross, Bernhard Herz, Jonathan Schiller (access PDF file here)

The announcement of the Libra Association to issue a private global currency has triggered a heated debate about the concomitant advantages and risks. Proponents expect Libra to unfetter money from its “governmental chains” and liberalize and cheapen monetary transactions around the globe. Opponents argue that a private currency imposes unforeseeable risks for both individuals and the whole financial system. Furthermore, Libra could hamper monetary policies of national central banks. This paper contributes to the debate in two ways. First, we offer a comprehensive overview of the concept of Libra and its possible benefits and downsies to analyze its market potential. Second, we discuss potential implications that a private currency as Libra poses for monetary policy and financial regulation.

The Vision

In June 2019, a Facebook-led consortium, the Libra Association, caused a worldwide flurry when it announced the introduction of the cryptocurrency “Libra” for the year 2020. This project aims to provide “a simple global currency and financial infrastructure that empowers billions of people”.[1] In terms of better financial inclusion, “many more people should have access to financial services and to cheap capital”.[2] This is to be achieved through a currency “built on a secure and stable open-source blockchain [Libra Blockchain], backed by a reserve of real assets [Libra Reserve], and governed by an independent…