Facebook's original proposal for Libra was to develop a sweeping, global currency with the backing of the world's biggest companies. Now, with fewer companies on its side and a massive backlash by lawmakers, Facebook is loosening one of Libra's core values.
Libra’s planned structure managed currency volatility risk by backing Libra with a basket of national currencies that the Libra Association would determine.
Speaking at a banking conference this weekend,
That doesn’t sound much different, but the hypothetical change Marcus suggested would introduce local sovereignty, and thus a path to country-specific regulation. Facebook has also reportedly worked with stablecoins in the recent past as part of a
“It shows that Libra acknowledges regulatory concerns and is prepared to consider various options,” said Zil Bareisis, a senior analyst at Celent. “Of course, it’s difficult to say whether it would be enough, or even if that’s the route they would be prepared to go.”
If nothing else, Marcus' words are a concession to the prevailing criticism of Libra as a “shadow currency,” but likely just the start of the process. Libra needs regulatory support to build its payments system, and has promised it will not launch until it has political support.
While designed to anticipate regulatory pressure by diversifying risk, the "basket of currencies" model instead is seen as a way to circumvent central banks’ traditional roles of setting monetary policy in their own nations.
“While it was not always thus, today the state enjoys a monopoly issuing currency,” said Eric Grover, a principal at Intrepid Ventures. “Regulators don’t want a competing currency. Marcus is floating a compromise."
Libra also needs to address risk concerns such as cryptocurrency's notorious volatility. Like most cryptocurrencies, the fear of volatility is one of the main risks holding back adoption for wider payments. Stablecoins, which peg crypto to a government currency, are the main strategy to mitigate this volatility.
The stablecoin flexibility Marcus is suggesting would not entirely remove the competitive element, as Libra would still be a distinct universal payment ecosystem, making it an ostensible rival to governments and for-profit payment processors.
As such, it would be broader in scope than other blockchain initiatives, such as
“If Libra were to instead just be an alternative payment system instead of a currency as well, that would eliminate the issue,” Grover said. “Constructively it wouldn’t be much different from a tokenized prepaid or debit card.”
Libra's founding group of 28 partners has shrunk in recent weeks, as PayPal, Visa, Mastercard, Stripe, eBay and Latin American payment company Mercado Pago have all declined to participate, though in most cases the companies have left open the possibility of returning.
Amid the payment company departures,
At the banking conference, Marcus also said the project's goal of a summer 2020 launch remains, though he said delays are possible. But like any other company that would build a cryptocurrency, Facebook will still have to gain merchant, bank and consumer
“Visa, Mastercard and PayPal, while possibly resigned to having to deal with [regulators and politicians], can’t be keen about the world’s largest social media network launching a competing payment system,” Grover said.
