The concern from regulators is that giving over the control of currency creation to Facebook -- or any private company -- would strip governments of one of their greatest assets: monetary policy. The response from central banks has varied from active engagement as in the case of Singapore, to China considering its own equivalent.
In a blog post from July on Harvard Law School’s forum for “corporate governance and financial regulation,” three professors who wrote a paper about regulating Libra argued that it posed a threat to sovereign governments.
“Once Libra becomes well established in some countries, national governments will lose control of their money supply and lose monetary policy as a tool of economic expansion or contraction,” the post reads. “They will also lose the capacity, in times of severe uncertainty, to impose capital controls to prevent capital flight. All of these changes may well prove highly destabilising to the entire global financial system.”
Catalini disagrees. He says that even for countries whose currency is not part of Libra’s reserve, there is little fear of Libra replacing local tender because of how the digital coin will be used. Its main purpose, Catalini says, is to help with payments that include lots of fees or burdens, like cross-border money transfers. It will be less useful for day-to-day commerce, he added.
“It’s unlikely that Libra will be used locally because the local currencies have better properties” for local commerce, he said.
This article was provided by Bloomberg News.