Fed economists feel that Libra would not have lived up to the hype

By: Ali Raza
Ali Raza
Ali plays a key role in the cryptocurrency news team. He loves travelling during his spare time and enjoys… read more.
on Jun 23, 2020
  • The US Fed economists recently released a paper that looked into original plans for Facebook's Libra.
  • When the coin was announced, financial authorities around the world bashed in fear of an economic crash.
  • The new paper suggests that such danger never existed, and questions if policymakers were too harsh.

Back in early 2019, when Facebook first confirmed the rumors of the company developing its own stablecoin, Libra, the hype about the project soared. The project caused a lot of fear among traditional financial institutions, economists, and alike.

The crypto community itself was not impressed, as it never considered it ‘real crypto,’ due to its centralization. Everyone else, however, saw Libra as a potential destroyer of traditional finance due to Facebook’s massive reach.

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The fears were so great that they even caused China to step up the development of its CBDC, which, in turn, caused central banks around the world to start developing their own native coin.

However, since then, the Libra Association has changed what its token is going to be. Now, the US Federal Reserve economists commented on the project’s original form, stating that it likely wouldn’t have been as damaging as everyone was led to believe.

The Fed’s new report, published by Jean Flemming and Garth Baughman, states that policymakers may have overstated Libra’s downsides. The two economists created a hypothetical scenario in order to evaluate the coin’s potential impact on the economy. They were also interested in assessing the likelihood of its adoption.

Why were policymakers concerned?

Originally, Libra was to use an entire basket of fiat currencies that would have been used for maintaining its value, and making it resistant to volatility. In essence, it was to be a stablecoin with multiple currencies backing it. However, critics feared that this could destabilize fiat currencies, or even completely displace them.

It was not long before US lawmakers started moving against the project by trying to freeze it. Meanwhile, in Australia, the country’s central bank said that no one will use it. Libra caused fears even in Europe, where the finance minister of France threatened to block the coin.

The Fed report claims that the situation was never that desperate, however. According to their model, the basket could have developed great potential and become globally demanded, it would have never dominated either of the currencies.

But, as mentioned, Libra has already changed its approach, and now, it will be backed by a basket of other stablecoins. However, the Fed’s paper is now questioning whether the policymakers may have been too aggressive against this new technology.

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