Barry Eichengreen, a UC Berkeley professor, believes Facebook’s proposed stablecoin Libra is facing too many „unsolvable“ problems and government opposition to ever actually be launched.
At today’s Unitize conference, he said:
Libra is an interesting idea that will never see the light of day.
Eichengreen sees big problems with stablecoins
In general, the monetary historian Eichengreen finds the stablecoin sector as a whole largely ignorant of the monetary economy and history. He said his economic work resulted in invitations to „a series of lunches at excellent San Francisco restaurants with the founders and funders of future stablecoins.“ The response he drew was that potential operators of such stablecoins lacked fundamental knowledge. Some, he said, were unaware of any previous speculative attacks on pegged exchange rates.
My conclusion was that my lunch attendants knew all about blockchain, but they didn’t know much about money economics.
In addition, Eichengreen sees significant weaknesses in today’s stablecoins.
Stablecoins are either fragile – prone to attack and breakdown when only partially or with actual dollar or dollar bank balances, or prohibitively costly to replenish when in fact fully or over-collateralized.
Stablecoin advocates naive
While many analysts believe Facebook Libra has the potential to shake up the existing financial system, Eichengreen disagrees. He points out that despite the publication of a second white paper this year, „Facebook’s private label stablecoin“ is still plagued by numerous „unsolvable“ challenges.
He said there were fears that Facebook Libra „will undermine the effectiveness of national monetary policies“ in both emerging and developed countries. He also noted that in countries with volatile fiat currencies, citizens will choose to give up their local money in favor of a globally accepted „Libra dollar“.
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Without central banks, nothing works on Facebook Libra
The economist also believes that „Libra really needs a central bank if the markets around it are to be stable“. At the same time, he notes that national governments do not value the idea of private money like Libra at all.
National governments will feel uncomfortable about the creation of a private, Facebook-owned and Facebook-operated central bank.
In conclusion, in his opinion, there are some very large uncertainties that must first be resolved in order for the creation of a private currency like Libra to move forward. In this regard, however, Eichengreen sees it as black.
[…] my conclusion remains that some of these problems are unsolvable.
Is Bitcoin Money? – Learn what money is and to what extent BTC goes with it
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We limit ourselves to the basic functions of money and to what extent Bitcoin fits into this context. In a nutshell and simply explained. Only then will it be possible for us in our conclusion to decide whether Bitcoin is money or not.
In our knowledge article, learn all about the exciting question of whether Bitcoin is money, which very few people know, but everyone should know. Read article now.
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