â€˜Libra Will Never See The Light Of Dayâ€™: Monetary Historian
Economic historian Barry Eichengreen believes that stablecoins are either too fragile, or too expensive, to emerge as a dominant monetary form.
UC Berkeley professor Barry Eichengreen argues that Facebookâ€™s planned Libra stablecoin faces too many â€œinsolubleâ€� problems, and too much resistance from governments, to ever launch.
â€œLibra is an interesting idea that will never see the light of day,â€� he told the Unitize conference on July 10.
Eichengreen asserts that the stablecoin sector is largely ignorant of monetary economics and history. He said his economic work had led to invitations â€œto a series of lunches at excellent San Francisco restaurants with the founders and funders of prospective stablecoins.â€�
â€œMy conclusion was that my luncheon companions knew all about blockchain, but they didn’t know much about monetary economics,â€� Eichengreen said, emphasizing theyâ€™d been unaware of past speculative attacks on pegged exchange rates.
Eichengreen said that:
â€œStablecoins are either fragile â€” 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.â€�
Stablecoin advocates naive
While many analysts believe that Libra has the potential to disrupt the existing financial system, Eichengreen disagrees and points out that despite publishing a second whitepaper this year, â€œFacebookâ€™s private label stablecoinâ€� remains plagued by numerous â€œinsolubleâ€� challenges.
He said there are concerns that Libra will â€œundermine the effectiveness of national monetary policiesâ€� in both emerging and developed states, noting that citizens in countries with volatile fiat currencies will opt to abandon their local money in favor of a globally accepted â€œLibra dollar.â€�
Libraâ€™s planned over-collateralization of its stable token, leads the scholar to predict the excess backing will be provided by transaction fees. But as high fees deter adoption, Eichengreen predicts that â€œfees are going to be kept low, rais[ing] questions about the adequacy of the capital buffer.â€�
A Libra central bank?
The economist also posits that â€œLibra is going to need a central bank, in effect, if the markets that grow up around it are going to be stable,â€� alluding to the predicted rise of derivatives relating to the stablecoin.
â€œNational governments are going to be queasy about the creation of a private, Facebook-owned and operated central bank,â€� he added.
â€œSo 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.â€�
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