Multi-Currency Backed? – These Are the Problems that Facebook’s Libra Coin Will Face

The impact of Facebook’s GlobalCoin on the crypto space is widely regarded to become a positive one. First of all, because it will bring new people to the crypto space that had previously barely any exposure to the subject. Many observers deem that Facebook’s GlobalCoin will be some kind of ‘entry drug’ to those people. Especially, countries that have a poor infrastructure could profit from a stablecoin that will supposedly have a wide reach and comes from an established and trusted entity.

The Plan – Multi-Currency Backing

However, it is questionable whether such countries will have access to the stablecoin at all. Speaking to the German Wirtschaftswoche, Laura McCracken, Financial Services & Payments Partnerships Europe at Facebook revealed that Facebook’s coin will be backed by a basket of fiat currencies. A plan that raises many questions.

Stability Is Relative

The multi-currency might be a good idea for the stability of Libra but it raises some practical questions. First of all: Which currencies will Facebook choose? It is likely that these currencies will include among others the Dollar, the Euro and maybe the Yen. However, the value of these currencies are partly tied to each other. If the Dollar is not doing well, it is likely that the Euro and the Yen aren’t either. They all are tied to the performance of the world economy, other stable currencies from Arab states like the Saudi Rial are tied to the performance of the oil driven economy of these states. Furthermore, it would raise questions whether investors would trust a currency with such a backing. Another side problem is how to organize the redemption of Libra.

Regulation – A Big Question

Another question is how the SEC and the regulators of the concerned countries will classify Libra. Possibly, Libra and not Tether will set the precedence for stablecoins. It is not the first of its kind but Libra is the first stablecoin that could have an impact of global scale beyond the so-called crypto space. The French finance minister already called out that Libra ‘must not happen’. The controversy will unravel now that Facebook has presented its project as a whole. It is likely that there will be further resistance against Facebook soon. Especially, from European and Asian countries that seek to diminish the dominant role of North-American tech giants. This resistance could diminish the impact of Libra and might confine its impact to the North-American region.