Analysis & Opinions

Will a Reformed Libra Finally Gain Traction?

| Apr. 30, 2020

In late April, Facebook’s digital currency, Libra, underwent a transformation in its design. When Facebook first introduced Libra, many governments and regulatory bodies had voiced their concern for a widely used, privately owned digital currency. Since then, Facebook has reformed the Libra in an effort to garner widespread regulatory approval.

Originally, Libra was not backed by any existing currencies; however, Libra will now offer “stablecoins" backed by multiple currencies as well as tokens backed by one single currency. It is up to Central Banks to choose whether they will mandate the use of stablecoins, tokens, or both. Facebook also decided to register with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) as a money services business. This move increases Facebook’s legitimacy as a platform for currency exchange considering FinCen’s supervisory role in the financial system. In an effort to build more governmental and institutional support for Libra, Facebook is now allowing central banks, regulators, and enforcement agencies from more than 20 countries to govern its network. 

This should alleviate some of the pressure that lawmakers placed on Libra late last year for its clear omission of previously absent regulatory measures and reporting procedures. Whether these changes are ultimately successful for a reformed Libra to gain traction, these moves mark an important precedent set for the future of digital currencies. 

As other governments around the world accelerate their own programs to build Central Bank Digital Currencies (CBDCs), Libra has continued to stay ahead of the curve. Facebook has now stated that it will redesign its platform to work in tandem with any governments choosing to release CBDCs in the future, thus allowing the potential for immediate integration and partnership. Though the chances of a successful Libra appeared slim, its proposal of increased safeguards and inclusion of central regulatory bodies in future operations have certainly boosted its credibility.

Because the Libra now seems viable, the question becomes whether there is a need to integrate a digital currency into the global economy. As has been discussed at length in digital currency debates, the move to reliable digital currencies seems inevitable due to its promise of faster transactions and ability to reach the “unbanked” population. 

Central banks will have to carefully oversee and organize this transition in order for this integration to be seen as legitimate. Since these institutions hold the financial power and stability upon which the global economy relies, any kind of proposed change from an outside entity will only prove effective with their signatures. Even with their approval, implementing a singular digital currency will be challenging and cause widespread skepticism. France and Germany have already made clear that they will attempt to block Libra’s launch, while other governments around the world continue their efforts to set regulations and build their own CBDCs.

Over the past two years, Facebook has had multiple legal issues regarding their questionable data collection practices. Just recently, they were involved in issues with the newly famous video platform Zoom, which was accused of illegally sharing users’ personal data with Facebook. In their freshly revamped white paper, Facebook states “that if a central bank were to develop a digital representation of one of the currencies already on the network, the Libra Association could simply replace the single-currency stablecoin with the CBDC.” While this may sound simple, it would undoubtedly be a difficult task given this current era of great power competition. Ultimately, in deciding the structure of our future financial system, which will inevitably be tied to AI and big data infrastructure, it will be crucial to balance privacy and security concerns with big data innovations.

 As we look ahead, it seems far more likely (and sustainable) that central banks will be the ones issuing any novel forms. While observing this rapidly shifting environment and making decisions that will invariably affect the world’s future financial stability, we must pay careful attention to the structure of its foundation as well as the institutions that determine its path.

Statements and views expressed in this commentary are solely those of the author and do not imply endorsement by Harvard University, Harvard Kennedy School, or the Belfer Center for Science and International Affairs.

Michael B. Greenwald is director at Tiedemann Advisors. He is a fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs. From 2015-2017, Greenwald served as the US Treasury attaché to Qatar and Kuwait.

For more information on this publication: Belfer Communications Office
For Academic Citation: Greenwald, Michael.“Will a Reformed Libra Finally Gain Traction?.” , April 30, 2020.

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