Facebook’s Libra Association Concedes to Regulators, No Longer Permissionless
Libra walks back plans for a global stablecoin and its objective of being permissionless.
- The Libra Association has changed its proposed model to include sovereign currency-backed stablecoins.
- Those stablecoins will, in turn, back the Libra coin.
- The move comes days after the FSB issued warnings over the threat of stablecoins.
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The Libra Association has changed its proposed model to put global regulators at ease. But will the move help quell concerns?
Sovereign Stablecoins In
Originally, Libra planned to create a stablecoin backed by a basket of currencies and U.S. Treasury securities.
That structure has today been overturned in favor of the platform hosting several stablecoins representing sovereign fiat currencies.
The consortium’s overture is doubtless an attempt to appease governments concerned about its creation of a global stablecoin with an in-built active user base of 2.5 billion people.
The move comes days after the Financial Stability Board outlined guidance to central banks expressing grave concerns over the threat stablecoins pose to financial stability. The guidance also addresses concerns first aired when Libra announced its ambitions last year.
Libra will still be releasing a multi-currency stablecoin, but it will be backed by its new basket of fiat-pegged stablecoins instead.
Amended Whitepaper Reveals Major Changes
The amended whitepaper opens with a concession by the consortium that its original conception may have ruffled the feathers of sovereign currencies and it was working to undo that public relations damage:
“While our vision has always been for the Libra network to complement fiat currencies, not compete with them, a key concern that was shared was the potential for the multi-currency Libra Coin (≋LBR) to interfere with monetary sovereignty and monetary policy if the network reaches significant scale and a large volume of domestic payments are made in ≋LBR. We are therefore augmenting the Libra network by including single-currency stablecoins in addition to ≋LBR.”
Head of Calibra and a Board Member of the Libra Association, David Marcus, announced the changes to the whitepaper on Twitter today, saying that the most “notable evolutions are: a) the creation of single currency stablecoins, e.g. ≋USD, ≋EUR, ≋GBP, in addition to Libra Coin (≋LBR), which will now be a Move smart contract ‘stitching’ together fixed nominal weights of underlying stablecoins.”
The Facebook-backed crypto project will also forgo plans to transition to permissionless governance, further eroding its ambitions for a truly open network. Libra will now act primarily as a platform to aid in peer-to-peer money transfers without threatening to usurp sovereign monetary systems.
Got to hand it to the @Libra_ PR department. Most major outlets I’ve seen covering their latest move focused on the irrelevant point of them issuing multiple stablecoins.
That doesn’t matter at all. What matters is that they completely dropped the goal of being permissionless: https://t.co/GHLpTYREJR
— Udi Wertheimer (@udiWertheimer) April 16, 2020
While that new framework will undermine earlier objectives to foster financial inclusion, it may be necessary to get the green light from nervy regulators.