Friday , July 19 2019
Home / Adam Smith Institute / We can’t see it ourselves – Facebook’s Libra

We can’t see it ourselves – Facebook’s Libra

Summary:
As is so often true we find ourselves echoing Craig Pirrong here. We can’t really see what problem it is that Facebook’s new Libra solves. There being, to us at least, two major problems with what Libra actually is as well.It’s a stablecoin - that is, it should have a fixed and static value. This is most useful if we’re to regard it as a method of payment. Except the valuation is to a basket of currencies. Which means that when compared to any one currency it is of course not a stablecoin at all. That translation into real world currency value is thus always changing. Not a useful attribute of a means of payment.The other is the risk of temptation:I note in passing that low interest rates destroyed the traditional FCM model which relied on interest income from customer margins as a major

Topics:
Tim Worstall considers the following as important:

This could be interesting, too:

Tyler Durden writes White House Offers Pelosi ‘Menu’ Of Spending Cuts As Debt-Ceiling Talks Enter Most Fraught Phase

Tyler Durden writes Libra Will Upset World Economy If It Isn’t Regulated Tightly, G7 Warns

Tyler Durden writes Russia Offers Turkey Advanced Su-35 Jets Day After US F-35 Program Expulsion

Tyler Durden writes On The Brink Of World War 3: Here Are 5 Major Developments Within The Last 48 Hours…

As is so often true we find ourselves echoing Craig Pirrong here. We can’t really see what problem it is that Facebook’s new Libra solves. There being, to us at least, two major problems with what Libra actually is as well.

It’s a stablecoin - that is, it should have a fixed and static value. This is most useful if we’re to regard it as a method of payment. Except the valuation is to a basket of currencies. Which means that when compared to any one currency it is of course not a stablecoin at all. That translation into real world currency value is thus always changing. Not a useful attribute of a means of payment.

The other is the risk of temptation:

I note in passing that low interest rates destroyed the traditional FCM model which relied on interest income from customer margins as a major revenue stream (as Facebook is proposing here). Ask John Corzine about that, and look to the experience of MF Global.

If there’s a pool of funds which the operator of the pool keeps the interest from there’s always that temptation to chase returns on that pool. Higher returns meaning either greater risk of less liquidity. Which is indeed what happened at MF Global and could be said to be the problem that Neil Woodford’s funds are suffering from.

That we don’t know whether a new adventure will solve a problem or not is precisely the argument in favour of markets and entry into them so we’re obviously not saying that Libra should not happen or not be allowed. But it is true that we can’t quite see what problem will be solved here.

Media enquiries: 07584 778207 (Call only, 24 hour)

Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

Leave a Reply

Your email address will not be published. Required fields are marked *