Facebook-backed association revamps Libra following regulatory concerns

The Libra Association, the consortium created by Facebook to oversee all things Libra, has updated its white paper to make some changes. The association is abandoning its original plan to create a global stablecoin directly tied to a basket of fiat currencies and securities.

The Libra Association now plans to release several stablecoins — each of them will be backed by a fiat currency, such as USD, EUR, GBP or SGD. There will be a multi-currency Libra “coin,” but it won’t be a cryptocurrency per se — it’ll be a digital composite of those single-currency stablecoins. When you send one Libra, you’ll actually send a fraction of USD-backed, EUR-backed, GBP-backed (etc.) stablecoins.

The update confirms a previous report from The Information and represents a concession to regulators. The Libra cryptocurrency was supposed to be a brand new currency that could be easily exchanged using cryptocurrency wallets.

But many central banks feared that Libra would become a quasi-sovereign currency in some countries. For instance, in some countries with high inflation rates, such as Venezuela, Argentina, Turkey or South Africa, many people would have been willing to abandon local currency in favor of Libra. It would have been controlled by private companies that don’t necessarily care about monetary policies.

“While our vision has always been for the Libra network to complement fiat currencies, not compete with them, a key concern that was shared was the potential for the multi-currency Libra Coin (≋LBR) to interfere with monetary sovereignty and monetary policy if the network reaches significant scale and a large volume of domestic payments are made in ≋LBR,” the association writes in its update. “We are therefore augmenting the Libra network by including single-currency stablecoins in addition to ≋LBR, initially starting with some of the currencies in the proposed ≋LBR basket (e.g., LibraUSD or ≋USD, LibraEUR or ≋EUR, LibraGBP or ≋GBP, LibraSGD or ≋SGD).”

The Libra Association is using some interesting words in this quote. For instance, I wouldn’t say that it is “augmenting the Libra network” when it is reducing its ambitions.

Like USDC, every time the Libra Association mints a LibraUSD, they buy and store the equivalent in cash and cash equivalents in a bank account.

Additionally, the Libra Association will limit unregulated entities. You won’t be able to add Libra support to your app without going through a registration or licensing process in a Financial Action Task Force (FATF) member jurisdiction. Eventually, the Libra Association could allow unregulated entities with balance and transaction limits.

Finally, the Libra Association is abandoning plans to turn the Libra blockchain into a permissionless blockchain. Only members of the Libra Association will be able to run nodes. In other words, unlike popular blockchains, such as the bitcoin blockchain or the Ethereum blockchain, you won’t be able to run a node in your backyard.

At this point, it’s hard to call it a blockchain.