On Sunday Reuters reported that David Marcus, Facebook’s representative on the Libra Association board, said the group is open-minded about different approaches to the stablecoin. Specifically, they will consider an alternative to the libra currency being backed by a basket of currencies.
“We could definitely approach this with having a multitude of stablecoins that represent national currencies in a tokenized digital form,” Marcus said at a banking seminar. “That is one of the options that should be considered.” However, he wasn’t saying that was the preferred option.
Numerous concerns have been raised about Libra because Facebook’s userbase of 2.4 billion means that it could quickly rival national currencies. Potential problems were highlighted by the G7 paper on stablecoins released on Friday and at an IMF debate last week.
A large proportion of the challenges that the G7 perceives relate to the impact a new currency such as Libra could have on the control of domestic monetary policy. If individual currencies are issued instead that could assuage that concern.
Another G7 worry was that in countries with weaker currencies, the new stablecoin could provide an attractive alternative. Whether or not individual currency stablecoins address this concern is questionable. In the past countries with volatile currencies such as Zimbabwe have used the dollar as a black market alternative.
At the IMF conference, Harvard professor Jason Furman pointed out that people make the vast majority of retail transactions in their domestic currencies. He questioned the appeal to consumers of a new currency that fluctuates compared to the domestic one. Hence, individual stablecoins could be more attractive to Libra’s userbase.
But the biggest hurdle that Facebook and Libra have encountered is a political backlash. The U.S. Congress is perhaps the most resistant. While many of the issues related to Congress’ concerns over Facebook behavior and privacy breaches, the currency may be part of it. A basket of currencies creates a new currency that would replace some dollar transactions. By offering a digital dollar instead, it may seem less threatening.
And its not just in the U.S. that a new basket-based currency has raised concerns. In China, Libra spurred the government to accelerate the roll-out of its Central Bank Digital Currency (CBDC). Officials were concerned that baskets like Libra’s proposed currency could extend the dominance of the dollar. In contrast, a CBDC renminbi could make it easier for other countries to trade with China in its domestic currency.
In related news, JP Morgan Chase CEO Jamie Dimon was bearish about Libra. CNBC reports the CEO as saying “It was a neat idea that’ll never happen.” He continued: “We already have stablecoins, they’re not the first to do it.”
His comments follow the recent exits of major financial companies.Visa, Mastercard, Paypal, Stripe and others have all withdrawn, for now. But 21 companies went ahead and signed up to the Libra Association charter last week.
While Dimon’s comments about the existence of other stablecoins is accurate, no cryptocurrencies to date have managed to get beyond early adopter consumer appeal when it comes to payments. Facebook has the potential to do so.