We have initiated the formal payment system licensing process with @FINMA_media and updated our white paper to reflect key design changes to the Libra payment system. https://t.co/jiGnufzOtj#FinancialInclusion #TechforGood pic.twitter.com/1zdwoalG8I
— Libra (@Libra_) April 16, 2020
Instead of being just a single cross-border global digital currency backed by a basket of fiat currencies as originally intended, Libra will initially confine its ambitions to releasing a number of stablecoins that are each tied to a local currency.
Integrating Central Bank Digital Currencies
Such a move had been anticipated for several weeks due to the regulatory concerns and even political condemnation generated by the original concept.
The recent report from the Financial Stability Board (FSB) focused upon the challenges presented to central banks by stablecoins and highlighted how imbalance may occur in the financial system due to differences in legal frameworks for each jurisdiction.
In the FSBs opinion, stablecoins “…may have the potential to pose systemic risks to the financial system and significant risks to the real economy…”
By breaking the original Libra from a single world-encompassing currency to several versions that are fiat currency specific, Facebook have made it easier for regulatory oversight to be implemented and can also claim to have stayed true to their original stated goal of integrating “…smoothly with local monetary and macroprudential policies and complement existing currencies by enabling new functionality, drastically reducing costs and fostering financial inclusion.”
The new whitepaper suggests single-currency stablecoins such as LibraUSD, LibraEUR, LibraGBP or LibraSGD will be the first to be released to enable people to transact within those geographical regions where the currency applies.
However, under the new version, Libra as single entity coin will still exist but will “…simply be a digital composite of some of the single-currency stablecoins available on the Libra network. It will be defined in terms of fixed nominal weights, such as the Special Drawing Rights (SDR) maintained by the International Monetary Fund (IMF).”
It is suggested that this would allow “…the network to support a wider range of domestic use cases and of providing a clear path for seamlessly integrating central bank digital currencies (CBDCs) as they become available.”
Yesterday, the Swiss financial regulator FINMA confirmed they received an application from the Libra Association for a payment system licence and the vetting procedure had begun under the Financial Market Infrastructure Act (FMIA).