Facebook’s controversial stablecoin project Libra, which has faced a battle from regulators to a point where it has had to make some major changes, might still not see the light of day — according to Economic historian Barry Eichengreen. His belief is that stablecoins are either too fragile, or too expensive, to emerge as a dominant monetary form.
Eichengreen’s stand is aimed at Libra, which has already been delayed in its launch and is still trying to iron out the kinks that regulators quickly pointed out, but his general feeling towards stablecoins is that they are not ready and faces too many “insoluble” problems, and too much resistance from governments, to ever launch.
However, there is a new emerging trend from governments that surrounds stablecoins in the form of Central Bank Digital Currencies. Many major central banks are already looking at the potential of launching a blockchain currency that is tied to their own fiat currency, and run by the bank.
No understanding of Monetary Economics
Eichengreen believes that the stablecoin sector is ignorant of monetary economics and history. He said his economic work had led to invitations “to a series of lunches at excellent San Francisco restaurants with the founders and funders of prospective stablecoins.”
“My conclusion was that my luncheon companions knew all about blockchain, but they didn’t know much about monetary economics,” Eichengreen said.
Eichengreen said that:
“Stablecoins are either fragile — they are prone to attack and collapse if they are only partially backed or collateralized with actual dollars or dollar bank balances, or they are prohibitively expensive to scale-up if they are, in fact, fully or over-collateralized.”
Libra’s lacking potential
Libra began with so much potential and promise in terms of launching a cryptocurrency that would have a stable value, that would have huge growth for over 2 billion people in the Facebook, Whatsapp and Instagram realm.
However, Eichengreen points out that despite publishing a second whitepaper this year, Facebook’s private label stablecoin remains plagued by numerous “insoluble” challenges.
He added: “Libra is going to need a central bank, in effect, if the markets that grow up around it are going to be stable.”
“National governments are going to be queasy about the creation of a private, Facebook-owned and operated central bank. So there are some very big uncertainties, I think, that would have to be resolved in order for this creation to get off the ground, and my conclusion remains that some of those problems are insoluble.”