Cryptocurrency News

Can Facebook’s Libra Become the Global Reserve Currency?

Facebook’s upcoming Libra cryptocurrency has shaken up the digital currency industry. Regulators in multiple countries – including the US Internal Revenue Service (IRS) and European countries that have formed a G7 “Libra” Task Force – are under pressure to change their crypto laws before the coin launches in the first half of 2020.

The tech giant’s ambitious project has also received a mixed reaction from members of the crypto community, with some expecting positive results and others remaining reluctant.

From Stablecoin to Global Reserve Currency

Today, a Twitter user put forward an interesting theory, showcasing the potential path for Facebook’s ambitions. According to James Todaro, a managing partner at Blocktown Capital and a popular cryptocurrency commentator, it wouldn’t be out of the question for Facebook to aim to make Libra a global reserve currency, eventually controlling monetary policy on its own or with other organizations.

According to Todaro, Libra will have four stages of growth, the first of which is detailed in its whitepaper. In this stage, Libra’s value is pegged to an index of fiat currencies and bonds.

In the first stage, Libra will function as a stablecoin similarly to USDT and USDC (with the difference being that Libra will be pegged to multiple fiat currencies).

So What’s Next For Libra?

Going with Todaro’s theory, as Libra’s user base starts to grow, Facebook may decide to push its crypto to the second stage, which would mean adopting fractional reserve banking.

This system would allow Facebook to hold only a fraction of the reserves needed for Libra transactions. By reducing the amount of its reserves significantly (the global standard is 10%), the tech company could use its freed-up capital to provide loans to other parties.

Libra’s price could subsequently be based on a floating exchange rate. Contrary to its fixed sibling, a floating exchange rate is set by the open market and is based on supply and demand.

In the final stage, Facebook would make Libra the global reserve currency – in place of fiat currencies like USD and EUR – which would allow the tech giant to control the world’s monetary policy alone or with other organizations.

As Todaro put it:

Control over the creation of money is the holy grail.

Responding to Todaro’s theory, Twitter user Nic Carter postulated that Libra’s final stage could work if Facebook were to “feed all the world’s most granular macro data into the machine.”

Whether or not Facebook has such ambitious plans, Todaro’s theory sounds interesting. However, to achieve all of this, the firm will first have to deal with harsh regulatory scrutiny from numerous governments.

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