San Francisco tech giant, Facebook, revealed that its cryptocurrency called Libra would be backed by a basket of currencies around the world with the U.S. dollar being the biggest backer. However, it is interesting that while most of the world’s strongest currencies like U.S. dollar, euro, yen, sterling and Singapore dollar, the Chinese yuan will not be backing the ambitious cryptocurrency project of the tech company.
The news was first reported by a local news outlet in Germany, Der Spiegel, that refers to a letter that Facebook sent explaining their plans for the infamous cryptocurrency.
The letter, which was a response from the tech company to German legislator Fabio De Masi, Facebook said that the Libra money would be backed by the U.S. dollar, which comprises 50% of the basket. Other backers include euro with 18%, the yen with 14%, the British pound with 11% and the Singapore dollar with 7%.
The Libra venture of Facebook has since been the subject of regulatory scrutiny over the company’s data privacy reputation. More than that, regulators, central banks, and financial regulators around the world have since been expressing their concerns over the potential of the Libra currency to disrupt the global financial system.
Most recently, France and Germany said that they would totally block Libra from operating in their countries because they believed that there should be no private entity that should claim monetary powers.
No new money will be created by Facebook Libra
Since the announcement of the Facebook Libra venture back in June, the company has been mum amid the criticisms but last week, David Marcus, head of Facebook’s Calibra, the supposed wallet for the currency, attempted to debunk the regulatory concerns that have been hurled against the venture.
“Recently, there’s been a lot of talk about how Libra could threaten the sovereignty of Nations when it comes to money. I wanted to take the opportunity to debunk that notion,” wrote on Twitter.
Marcus explained that Libra would be backed by strong currencies around the world, which means that for every one Libra, there will be a corresponding real-life currency to back it up.
“Libra is designed to be a better payment network and system running on top of existing currencies, and delivering meaningful value to consumers all around the world,” he said. “Libra will be backed 1:1 by a basket of strong currencies. This means that for any unit of Libra to exist, there must be the equivalent value in its reserve.”
There will be no new money that will be created for Libra to work, Marcus said. He added that creating money is still in the hands of sovereign nations.
“We will continue to engage with Central Banks, Regulators, and lawmakers to ensure we address their concerns through Libra’s design and operations,” he added.
No Chinese yuan for Facebook Libra
As earlier mentioned, Libra currency will be backed by a basket of strong currencies except for China’s yuan. This is an interesting element in the story as China has since been adamant on Facebook plans to launch its own cryptocurrency.
China’s central bank has even announced that they are expediting their plans to create their own cryptocurrency as a response to the emergence of Facebook’s Libra. Earlier reports revealed that People’s Bank of China (PBOC), the nation’s central bank, has committed to fast-track the development of a digital currency that Communist China can control.
China has already given the go-signal for the PBOC to start with the next steps in developing its digital currency, said Wang Xin, director of the PBOC Research Bureau. Wang said that this move would “counterbalance” the risks that ventures like Libra are posing to the global financial market.
“A digital currency issued by the central bank can improve the efficiency of monetary policy, and help to optimize the payment system,” he said.