Fear of Libra’s Stablecoin Replacing Domestic Currencies Is Greatly “Overstated:” Fed Reserve
Federal Reserve economists disclose that project Libra’s ability to disrupt economies may have significantly been “overestimated” and overstated by policymakers.
The report released on Monday shut down the extremist's statements that the earlier version of one Libra stablecoin could replace the global economic systems as we know them today. The report arose from a prototype based on a worldwide cryptocurrency hypothetical.
Two Federal Reserve economists reveal that the initial model of Facebook’s stablecoin Libra release in mid-2019. The meticulous report focuses on a model based on several stablecoins backed by several domestic currencies and the impact it has on being adopted or replacing the domestic fiat currencies hypothetically.
Regulators against Libra and global digital stablecoins
Libra project has received extensive criticism from various financial authorities and regulators across several regulations. Financial watchdogs such as the G20’s Financial Stability Board (FSB) flagged the project arguing that scenarios where payment outages were to occur in economies that would be highly dependent on the global stablecoins. US legislature also attempted to stop the project in its tracks with French Financial Minister opined that it could lead the ouster for sovereign currencies.
However, Garth Baughman and Jean Flemming's report has seemingly discredited the narrative. It reveals that as much as the stablecoin may have the potential to be adopted by countries internationally, the day to day use of Fiat currencies would ensure that the stablecoins demand never surpasses the currencies backing the coin.
“Our estimates suggest that there must be significant benefits in addition to those we study here to achieve widespread adoption of basket-backed stablecoins.”
A new path for Libra project
Notably, the Libra Association has now shelved its ambition of offering a stablecoin pegged on a basket of currencies. Instead, they intend to zero in on independent digital backed fiat currencies as the digital wallet Calibra, CEO David Marcus had predicted at the close of last year at a banking conference. This sudden turn around could be attributed to the hostility and regulatory scrutiny they have received from the governments.
“Instead of having a synthetic unit … we could have a series of stable coins, a stable dollar coin, a stable euro coin, a sterling pound stable coin, etc.”
They recently onboarded Mr. Stuart Levey, the former Chief Legal Officer at HSBC, as their new CEO. They believe that his vast experience in compliance would steer them from their current regulatory crunches that hinder overlap with the legal feasibility of the project.