Prof. Dr. Maik Schmeling, Goethe University Frankfurt, CEPR, and SAFE
September 2019
Abstract
Facebook’s proposal to create a global digital currency, Libra, has generated a wide discussion about its potential benefits and drawbacks. This note contributes to this discussion and, first, characterizes similarities and dissimilarities of Libra’s building blocks with existing institutions. Second, the note discusses open questions about Libra which arise from this characterization and, third, potential future developments and their policy implications. A central issue is that Libra raises considerable questions about its role in and impact on the international monetary and financial system that should be addressed before policymakers and regulators give Libra the green light.
I. What is Libra?
According to the Libra White Paper (2019), Libra is a “global currency and financial infrastructure”composed of three parts. First, Libra is a blockchain-based digital currency. Second, it shall be backed by a reserve of assets which is designed to keep its value stable. Third, it will be governed by an independent organization (the Libra Association) which is tasked with developing the currency’s ecosystem.
While the Libra White Paper and other information released so far do not provide enough details on all aspects of the final implementation, a few features of the proposed currency and its ecosystem are reminiscent of existing institutions, such as currency boards, exchange traded funds (ETFs), and special drawing rights (SDRs), and allow for a rough characterization of the different angles of the project.
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