UC Berkeley professor Barry Eichengreen argues that the Facebook plan, the stablecoin Libra, faces too many „unsolvable“ problems, and too much government resistance, to be launched.
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„Libra is an interesting idea that will never see the light of day,“ he told the Unitize conference on July 10.
Eichengreen says the sector that supports the stablecoins is largely ignorant about money economy and history. He said his economic work had led to invitations „to a series of luncheons at fine restaurants in San Francisco with the founders and financiers of the future stablecoins.
„My conclusion was that my lunch buddies knew all about blockchain, but they didn’t know much about money economics,“ he said, noting that they had not been aware of past speculative attacks on pegged exchange rates.
„Stablecoins are fragile, prone to attack and collapse if they are only Bitcoin Method partially backed or guaranteed by real dollars or dollar bank balances, or are too expensive to raise if they are, indeed, fully or over-collateralized.
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While many analysts believe that Libra has the potential to alter the existing financial system, Eichengreen disagrees, noting that despite publishing a second whitepaper this year, „the private label of the Facebook stablecoin“ is still plagued by numerous „insurmountable“ challenges.
He said there is concern that Libra will „weaken the effectiveness of national monetary policies“ in both emerging and developed states, noting that citizens in countries with volatile fiat currencies will choose to abandon their local money in favor of a globally accepted „Libra dollar.
The expected over-collateralisation of the Pound Sterling token, leads the academic to predict that the excess support will be provided by the transaction fees. But as high fees prevent adoption, Eichengreen predicts that „fees will remain low, raising questions about the adequacy of the capital cushion.
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The economist also argues that „Libra will need a central bank, in fact, if the markets that grow around it are to be stable,“ alluding to the expected rise in stablecoin-related derivatives.
„National governments are going to be baffled by the creation of a private central bank, owned and operated by Facebook,“ he added.
„So there are some very big uncertainties, I think, that would have to be resolved for this creation to take off, and my conclusion remains that some of those problems are unsolvable.