50% of each Libra coin will be backed by US dollars and short-term US government bonds, the company said in a letter to a left-wing German politician Fabio De Masi, Der Spiegel reported. 18% of Libra will be made of Euro and euro-dominated government bonds, while the remainder will be made of cash and government bonds from Japan (14%), the UK (11%), and Singapore (7%).
What does this mean? It means that for every Libra coin that Facebook issues, the company has to deposit foreign currency in this composition. Facebook had announced Libra as a stablecoin, that is, a cryptocurrency that is pegged to a basket of government-issued currencies to avoid the wild swings that have dogged other cryptocurrencies.
Any significant currencies that are missing? Yes! The Chinese Yuan.
Why? Probably because Facebook doesn’t want to compete with Chinese government’s own stablecoin DECP (Digital Currency Electronic Payment) which was announced earlier this month. Or it could be to mollify American politicians who fear Chinese influence on exports through a deliberately weakened yuan.
Are there any yuan-based stablecoins? Yes. Tether, a stablecoin firm, announced launch of CNH₮ a few days after the People Bank of China announced DECP. It is currently the only yuan-based stablecoin in the world, and is initially available only on the Ethereum blockchain.
Let’s get back to Libra. Who will govern it? Unlike other cryptocurrencies that are decentralised, Libra will be controlled by Swiss-based consortium of over 28 companies called the Libra Association. Each entity, having paid $10 million each, will have a say in how the currency is governed. It includes Mastercard, PayPal, Visa, Lyft, MercadoPago, Spotify AB, etc. Facebook’s rumoured goal is to rope 100 companies into the Libra Association.
Who is handling Facebook’s crypto business? Facebook has created a subsidiary called Calibra, which will handle the firm’s crypto business and operate a crypto wallet of the same name.
What about data? Will Facebook be able to access Calibra’s data? Facebook’s white paper claimed that Calibra will run independently of its social network business, and there will be strict separation of financial and social data. Marcus also said that Facebook will not be able to access data from Calibra. But, Facebook’s letter to German lawmakers seems to suggest that the company has not ruled out using the financial data that it will collect from users.
What else will Calibra do? It will develop online applications so that people can use Libra digitally, for instance, through WhatsApp or Facebook Messenger.
Where will Calibra be located? Facebook also said that it would locate Calibra in Ireland to serve European Libra users and to comply with EU money laundering guidelines.
Have countries started accepting Libra? In the 4 months since its announcement, no:
- European Central Bank: The central bank is reportedly working on a long-term plan “to launch a public digital currency that could make projects such as Libra redundant”. ECB board member Benoit Coeure revealed that this project would be called TIPS. German and French finance ministers, Olaf Scholaz and Bruno Le Maire, criticised Libra on September 13 at a meeting of eurozone finance ministers in Helsinki and backed the development of an alternative public cryptocurrency.
- Germany: Rejects Libra for the head of losing state monopoly on money to private companies. However, the German government might look into a state-stable cryptocurrency and a state-owned blockchain.
- France: French Finance Minister Le Maire has called for an EU-wide ban until “concerns over consumer risk and governments’ monetary sovereignty were addressed”.
- USA: President Donald Trump tweeted on July 12 that Libra would have little standing or dependability and called for regulation of Libra. In July 2019, a group of Senators in the US raised their concerns against Libra, noting that it would be “crazy to give them [Facebook] a chance to experiment with people’s bank accounts”.
What have the responses to Libra been in general? As expected, the responses to Libra have been negative across the world since the move was announced on June 18:
- In August 2019, privacy commissioners of the US, the UK, the EU, Australia, Canada, Albania, and Burkina Faso issued a joint statement expressing their concerns about the privacy risks posed by Libra.
- When Facebook unveiled its plans for Libra on June 18, reactions critical of the move poured in: “Facebook’s Libra isn’t a pure cryptocurrency”, “nobody should expect privacy by using it”, and “[Libra is a] catastrophic regression”. Some people also highlighted the threat that Libra poses to governments and the global financial ecosystem.
Given criticism and lack of regulatory approval, will Libra still be launched in 2020? Yes. Facebook’s David Marcus told a Swiss newspaper NZZ on September 20.