On June 18, the Swiss association "Libra Association" presented a cryptocurrency project aimed at offering the world a "safe and stable digital currency", Libra, as of 2020, and making it "the Internet of money". The announcement would have gone unnoticed, if the association did not include Calibra, an ad hoc subsidiary of Facebook, and about 30 organizations ranging from corporations like Mastercard, Visa, Paypal, Booking, Uber, Spotify, Iliad or Vodaphone, to venture capital firms like Union Square Ventures, and even NGOs like Women's World Banking. It has caused a real thunderclap, both in the world of finance, where the ambitions of the digital giants are well known and feared, and among politicians, with American Democratic MPs and Donald Trump, in a rare show of agreement, asking Facebook to freeze this project.
Central bankers quit exercising their usual restraint
While banking and regulatory authorities have so far taken a cautious approach to cryptocurrencies such as Bitcoin or Ether, oscillating between regulation and interest in financial innovation, this time the tone is different. As soon as Libra's announcement was made, Mark Carney, Governor of the Bank of England and potential candidate for the post of Managing Director of the IMF, indicated that the project would be screened and subjected to strict regulation. Randal Quarles, who chairs the Financial Stability Board (FSB), echoed this in a letter to the G20 on "crypto-assets used as a means of payment for retail transactions", a transparent reference to Libra. Jay Powell, Chairman of the Federal Reserve, told the House Finance Committee that "Libra raises serious problems", while Xiaochuan Zhou, former Governor of the Chinese Central Bank, was concerned about the trend towards "dollarization" of the world economy, which Libra would strengthen. More directly, Benoit Coeuré, a member of the ECB's Executive Board, urgently requested by the G7 for a report on the subject, humorously borrowed from the start-up lingo to note that now that an elephant had entered the "sandbox" of cryptocurrency innovators, it was time to get down to business.
Let's start by deciphering the project, in order to get the clearest possible picture, given the project’s many grey areas. The launching White Paper explains that Libra's mission is to provide a global currency and its infrastructure to billions of people, including those who have no access to financial services. How? By issuing a stable cryptocurrency, backed by safe and liquid assets, supported by a blockchain technology, accessible to everyone and managed by the Libra association, independently of Facebook. Let us examine each of these points in the light of the technical annexes supporting the White Paper.
A cryptocurrency not quite stable
Unlike Bitcoin and its epigones, whose dollar value has been particularly volatile so far, Libra would be a "stable cryptocurrency", because it is backed one to one by a "reserve", composed of safe and liquid assets, such as bank deposits or treasury bills, issued in currencies managed by renowned central banks. Although they are not specified, we can think of the US dollar, the euro, the yen and the pound sterling. It should be noted that since it is backed by a basket of various assets issued in different currencies, the Libra will not be stable in any of these currencies, even if its sponsors claim that fluctuations will be small. It should also be noted that the interest earned on Libra's counterpart assets will not be distributed to users, but will fund Libra’s infrastructure and pay dividends to seed investors. Finally, the management of the reserve's assets will be entrusted to a network of passive managers with a high credit rating, with the Libra association retaining the right to introduce new assets or liquidate some of them, without further specification.
Blockchain, yes, but not right away
The encryption and security of Libra transactions will be quite far from the blockchain technology used for bitcoin emissions. The remarkable feature of the original blockchain is its total decentralization: everyone can, anonymously, issue new cryptocurrency units (a particularly energy-intensive business) and, in theory at least, verify the integrity of the transactions recorded successively in the chain by downloading it on their computer.