Facebook Libra has shocked the digital currency industry. Regulators in many countries, including the US Internal Revenue Service (IRS) and the European countries that formed the working group G7 "Libra", are under pressure to change their crypto laws before the launch of coins in the first half of 2020.
The ambitious project of the technical giant also received an ambiguous reaction from the crypto community, some of whom expect positive results, while others remain skeptics.
From stable currency to global reserve currency
Today, a Twitter user has come up with an interesting theory demonstrating a potential path for Facebook's ambitions. According to James Todaro, Blocktown Capital’s managing partner and popular cryptocurrency commentator, Facebook is out of the question to make Libra a global reserve currency, ultimately controlling monetary policy alone or with other organizations.
According to Todaro, Libra will have four stages of growth, the first of which is described in detail in the official document. At this stage, the value of Libra is tied to an index of non-binding currencies and bonds.
Libra has a dual aim of data and eventually becoming a global reserve.
Libra stages of growth:
1) Value pegged to index of currencies / bonds.
2) Value calculated from fractional reserves.
3) Value has a floating exchange rate.
4) Facebook / corporations control monetary policy.
- James Todaro (@JamesTodaroMD) July 8, 2019
At the first stage, the Libra will function as a stable coin in the same way as USDT and USDC (with the difference that Libra will be tied to several fiat currencies).
So what's next for Libra?
In accordance with the theory of Todaro, when the Libra user base starts to grow, Facebook may decide to move its cryptography to the second stage, which will mean accepting a partially reserved banking service.
This system will allow Facebook to store only part of the reserves required for Libra transactions. Thanks to a significant reduction in the volume of its reserves (the world standard is 10%), a technical company can use its freed capital to provide loans to other parties.
Libra price could subsequently be based on a floating exchange rate. Unlike its fixed brother, a floating exchange rate is set by the open market and is based on supply and demand.
In the final stage, Facebook will make Libra a global reserve currency - instead of conventional currencies such as the US dollar and the euro - which will allow the tech giant to control monetary policy in the world alone or with other organizations.
As Todaro said:
Responding to Todaro’s theory, Twitter user Nick Carter suggested that the last stage of Libra’s work might work if Facebook “downloads all the most granular macro data to the machine”.
Regardless of whether Facebook has such ambitious plans, Todaro’s theory sounds interesting. However, to achieve all of this, the firm will first have to face tight control from numerous governments.