August 6, 2020

Copy-paste | Libra tied to the dollar by 50%

The US dollar will be 50% of the basket of currencies to which the Libra digital coin will be tied. The remaining 50% will be divided between themselves, the euro, the yen, the British pound and the Singapore dollar, Der Spiegel reports citing a letter from Facebook.

Chinese yuan will not enter the basket. Presumably Facebook expects in this way to soften the position of the American authorities in relation to Libra. Washington is known to be concerned about the growing influence of the renminbi as a reserve currency amid a worsening trade conflict between the two economic powers.

In a letter in response to a request from a German lawmakerFabio De Masi, Facebook explains that the US currency will account for 50% of the basket, followed by the euro at 18%, then the yen at 14%, the British pound at 11% and the Singapore dollar at 7%.

Is Libra a global threat?

Swiss-based Libra Associationis a non-profit organization that includes Facebook and 27 companies. The Libra cryptocurrency is expected to be launched in 2020. However, given the tough stance of regulators around the world, including the Fed, the Bank of England and the Central Bank of Singapore, its proliferation could be in jeopardy. Recall that last week, the French finance minister promised to do everything possible to prevent the launch of Libra in Europe. This position was also supported in Germany.

Regulators around the world have responded with extreme caution to this initiative. and central banks warn that stablecoins can destabilize the global financial system.

Libra Association did not provide an officialinformation on the composition of reserves. Most likely, they will be formed from cash and short-term government bonds denominated in US dollars, euros, pounds and Singapore dollars.

Facebook cryptocurrency is still under construction,however, it has already earned the status of one of the most common stablecoins backed by assets such as cash deposits, short-term government securities or gold. As a rule, such coins are less volatile and more like traditional assets than standard cryptocurrencies such as bitcoin.

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