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It is safe to say that Facebook’s announcement of Libra, the world’s first stable crypto currency, has caused somewhat of a stir. While crypto-purists are generally unimpressed with Libra, as it is not in line with the “pure doctrine”, our esteemed colleague Simon Taylor of 11:FS spoke of a “holy shit moment”. We think this is a very fitting description, particularly if you look at the founding members of the Libra Association who, aside from Facebook, are composed of such illustrious names as Visa, MasterCard, Uber, eBay, Stripe, booking, PayU, Coinbase, Spotify, PayPal and more. ‘Holy shit’ is probably also what the Bundesbank thought. It fears a return to the Wild West for the monetary system and pre-emptively warned against the Libra cryptocurrency, which could quickly become systemically relevant. A political answer followed almost immediately in the form of new laws. The intention is to prevent a shadow banking system and to avoid endangering the stability of the entire monetary system. Economists, on the other hand, are likely to cheer. At least one person did, namely our Hugo Godschalk, with whom Susanne Grohé and I discuss Libra’s macroeconomic implications in the 42nd episode of PayTechTalk.
What could Libra’s macroeconomic implications look like? Questions, questions and more questions…
Is Libra a currency or money? What constitutes a currency and what is money? Can Libra even be a currency if it is not supported by a state? And if Libra turns out to be successful, does that mean that the Libra Association will have to invest billions in fiat currencies into it? Who would be able to manage that? And what would be the political-economic implications? What would happen if individual countries decided to accept Libra as a currency or second currency? Could this potentially harm the currencies supporting Libra?
Can Libra cause an inflation of fiat currencies and if so, what macroeconomic implications would that have? What could be the reason why Libra is supported by a basket of currencies, and does it need that? Could a change in the composition of the currency basket supporting Libra also have an impact on the relevant currency?
In light of the fact that there is no democratic control over the direction of Libra, but it is centrally controlled by a non-state consortium of large technology groups, can Libra even live up to its claim of becoming a global currency?
Lots of questions surrounding the topic of “Libra’s macroeconomic implications”, which we delve into in our 42nd episode of PayTechTalk.
Have fun listening!
Further information and links
- https://paytechlaw.com/kryptowaehrung-libra/
- https://11fs.com/blog/11-most-interesting-things-about-facebooks-libra-cryptocurrency
- https://www.pymnts.com/facebook/2019/what-the-launch-of-facebooks-libra-means-for-payments/
- https://www.theguardian.com/technology/2019/jun/23/facebook-libra-cryptocurrency-poses-risks-to-global-banking
- https://www.theguardian.com/technology/2019/jun/25/facebook-libra-cryptocurrency-regulation
- https://paymentandbanking.com/worum-geht-es-beim-geheimnisvollen-facebookcoin/
- https://paymentandbanking.com/libra-facebooks-neue-waehrung/
Cover picture: Copyright © PayTechLaw / Logo Libra: Facebook
