The teacher of UC Berkeley, Barry Eichengreen, argues that the Facebook plan, the stable coin Libra, is facing too many “unresolved” problems and too much government resistanceas if to be started.
“Libra is an interesting idea that will never see the light of day.”he told the Unitize conference on July 10th.
Eichengreen claims that The sector that supports stable coins is largely ignorant of the money economy and history. He said his financial work had prompted him to receive invitations “to a series of lunches in excellent restaurants in San Francisco with the founders and donors of future stable coins”.
“My bottom line was that my lunchtime friends knew everything about blockchain, but they didn’t know much about money management.”He emphasized that they had not been aware of past speculative attacks on linked exchange rates.
“Stable coins are fragile, susceptible to attack and collapse if they are only partially secured or guaranteed with real dollars or bank deposits in dollars, or are excessively expensive to increase when they are actually complete or over-collateralized.”
Supporters of stable coins are naive
While many analysts believe that the Libra has the potential to disrupt the existing financial system, Eichengreen disagrees and He notes that “Facebook’s Stablecoin Private Label” is still plagued with numerous “insurmountable” challenges despite the release of a second white paper this year.
He said there were concerns that the Libra “is weakening the effectiveness of national monetary policy” in both emerging and developed countries, and noted that Citizens of countries with volatile fiat currencies will give up their local money for a globally accepted “pound dollar”.
The expected overcollateralization of the Libra Token causes the academic to predict this Excess support is provided through transaction fees. However, since high interest rates hinder acceptance, Eichengreen predicts that “interest rates will remain low, which raises questions about the adequacy of the capital buffer”.
Libra central bank?
The economist also states that “The Libra will need a central bankin fact, if the markets growing around them will be stable “, alluding to the expected rise in derivatives related to stablecoin.
“National governments will be amazed by the creation of a private central bank owned and operated by Facebook.”he added.
“I think there are some very big uncertainties that need to be resolved for this creation to start, and My bottom line is that some of these problems are unsolvable“”