Facebook’s Libra project remains one of the more controversial ventures announced by a tech company in recent years. Without official regulatory approval, this new digital currency will not be launched anytime soon. While the whole world awaits more news regarding Libra, Facebook has shared some information regarding the “value” of this currency and how its price will remain relatively stable.
The Reserve Currency Basket
The digital currency known as Libra will not derive its value from the US Dollar directly. Instead, it will be “backed” by a basket of fiat currencies, both domestic and foreign. It is a sensible approach to create a digital currency which should be more than capable of sustaining its value as more time progresses. Only time will tell if that price stability will be a prominent feature, or if Facebook will need to introduce additional measures to ensure Libra doesn’t fall apart in quick succession.
According to recent information provided by Der Spiegel, it seems there will be a basket of reserve currencies to give Libra value. Fifty percent of that basket is backed by the US Dollar, whereas the Euro, Yen, British Pound Sterling, and Singapore Dollar make up the rest. A very interesting selection of currencies, primarily because the Brexit looms ahead. No one knows for sure how it will affect the GBP, either for better or worse. There is also no sign of the Chinese yuan or Japanese Yen being included, which seemingly sends a strong message to those countries.
More Currencies to be Added?
With five currencies in the reserve basket, it seems Facebook has given their digital currency project at least some basic thought. However, the list includes some currencies which might not necessarily make too much sense at this time. The company has confirmed new currencies could be added to the basket, or even replace other currencies currently included. That will be something interesting to keep an eye on over the coming months and years, assuming this project gets off the ground at some point.
Some restrictions and guidelines will apply when Facebook looks at adding new currencies to the Libra Reserve. The company is all too aware direct or indirect regulatory restrictions will force their hand sooner or later. That could be one of the reasons why the Chinese yuan isn’t part of the initial basket list. Additionally, there is an ongoing “trade war” between the US and China, which doesn’t make it easier for tech companies to enter the Chinese market through innovative projects.
Addressing Lingering Concerns
The first announcement regarding the Libra may have overstated things a bit. At that time, it seemed as if Facebook indicated the project was a done deal and would launch fairly soon. So far, that is anything but the case. Various regulatory concerns have arisen which will need to be addressed first and foremost. There are also regions which openly oppose Facebook’s currency even before it has been launched. That shows many people either expect the project to fail or aren’t even willing to give it a chance at this time.