Facebook Libra – Well populated graveyard pt. II

Libra has been neutered by its opponents.

• Libra is expected to finally launch early in 2021 but Facebook is having to make so many concessions to the forces that are arraigned against it that I think it will end up as just another digital currency that no one can be bothered to use.
• Libra launched as an ambitious new currency backed by a series of currencies and assets so that its real value could be easily determined and that users would have confidence in it.
• The launch was also accompanied by support from a series of big payment companies which meant that as launched, the Libra currency had a real chance of success.
• Although conceived by Facebook, the Libra Association is independent of Facebook and the currency was going to float against other currencies much like the DXY Index which tracks the US$ against a basket of other currencies.
• Libra would be unusual in being only the third currency in existence (the others being Bitcoin et al and gold) that are not controlled by a government or central bank and I have long suspected that it is this that triggered the resistance to Libra as opposed to the much-vaunted privacy concerns.
• This is because the centralised fiat currency system gives governments the ability to move the value in an economy from one place to another without increasing taxes.
• This is typically achieved through money printing by the central bank that is then given to the government in return for government debt.
• The resulting increase in money supply will eventually lead to inflation meaning that those that are holding the fiat currency cede purchasing power to the government of the day.
• This is the method that most are likely to take in terms of paying for the ruinous cost of the COVID-19-related lockdowns, furlough and corporate support schemes and the printing presses are already in full swing.
• If Libra had become a major currency in its own right used by billions of people, then the banking system and the central banks would have lost control of a large part of the financial system.
• I am convinced that it was this rather than the concerns with regards to privacy that has driven the vested interests to ensure that Libra is gutted of any of the real advantages that it could have offered (see here and here).
• The net result is that Libra will no longer be a free-floating currency but a digital representation of single currencies meaning that the central banks still have the ability to sap Libra holders of their purchasing power by printing the underlying monetary unit.
• Furthermore, pressure by the vested interests has effectively ensured that all of the backers that could have ensured its success have all deserted (see here) the currency and I think that this will mean that it never really takes off.
• Hence, Libra is firmly on the path towards the well-populated graveyard of those that have attempted to disrupt the banking industry and the financial system and failed.
• The best thing banking can do is either make the existing service so good that there is little incentive to create an alternative or create the alternative itself.
• Libra’s one hope is that it can launch in some form that the regulators and politicians will allow and for it to win the widespread usage from the 2.1bn user base.
• This could then force the hand of governments, regulators and banks into accepting Libra as a fait accompli and grudgingly permit it to become a proper digital currency.
• Users are fickle and if the regulatory environment makes it so difficult to use, then no one will bother ensuring that Libra goes on the scrap heap with its peers.
• I have little hope for Libra and while the financial system remains so rigidly protected, very little is likely to change.