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My main concern about libra is that, by being strongly tied to real currencies, libra issuers (not just facebook, all of them) have effectively assumed the role

My main concern about libra is that, by being strongly tied to real currencies, libra issuers (not just facebook, all of them) have effectively assumed the role of unsanctioned mints, with the ability to damage the stability of each currency because libra is not tied to the international exchange system: if you pay facebook, or anyone else, $10 and they convert that into libra, now they have $10 that they will absolutely put back into circulation to make additional money on, _and_ $10 worth of libra have been created, which can be converted back into real dollars with the original $10 already gone.

DiseasedBadger 7y ago
What about that makes it better to be embargoed by Facebook? That's a dystopia no one needs.
- TheRealPomax 7y ago
  What about Libra is exclusive to Facebook? It's not "their" cryptocurrency, they just pitched the idea. The actual power behind libra is the Libra Association, which has a lot more scary companies participating.
  - cmiles74 7y ago
    I don't find this at all convincing. I believe Facebook will be managing much of the physical hardware involved, likely in their existing data centers. IMHO, the Libra Association will boil down to Facebook and the payment processors who have signed on. This strikes me as very much Facebook's currency.
    - c-cube 7y ago
      Each of the 28 participants will run its own hardware and validator on it (there are hardware requirements on top of the 10M$). FB might control the only wallet, initially, but not the validators.
traek 7y ago
This is how every bank works.
- politician 7y ago
  Fractional reserve banking usually requires some non-zero percentage of deposits to be withheld.
  - gridlockd 7y ago
    In virtually all developed nations, the requirement is either zero or single-digit percent.
    - benj111 7y ago
      zero? What happens when someone wants to make a withdrawal?
      - rtkwe 7y ago
        The operative word there is requirement. Banks in 0% reserve countries don't have to keep cash around but do to serve as their actual functions as banks.
        benj111 7y ago
        What countries are we talking about here? As far as I'm aware most developed nations have capital requirements for the banks. Whilst maybe not stating a minimum % reserve, in practice they do need to keep reserves for those capital requirements.
        rtkwe 7y ago
        I don't know I was just answering your question about deposits.
      - stephen_g 7y ago
buboard 7y ago
But i thought each libra must be backed by real money? i.e. when they sell 10 libra the 10 dollars go to the libra fund, and cant really circulate (but can be invested)
- TheRealPomax 7y ago
  But without Facebook (or any of the Libra association members that aren't already financial institutions) starting a bank, and then for obvious reasons being forced by law to split that off from their parent company as an independent entity, why would anyone expect banking laws to apply?
  - buboard 7y ago
    It's not banking laws at all, it is the way they set up the association, I presume precisely to avoid fears like this. I think there are not clear laws yet about this kind of backed stablecoins. However, their reserve will be 100% , which is way more than any bank.
    - redorb 7y ago
      I feel like this is E-gold 2.0 maybe 3.0 with BTC being 2.0 https://en.wikipedia.org/wiki/E-gold https://en.wikipedia.org/wiki/E-gold
      - buboard 7y ago
        E-gold was a scam IIRC, while libra's assets : > the assets in the Libra Reserve will be held by a geographically distributed network of custodians with investment-grade credit rating to provide both security and decentralization of the assets. And BTC is not backed by anything, it has intrinsic value now so it's wrong to call it a scam.
        benj111 7y ago
        What is the intrinsic value of btc? I can't eat it, use it to heat my house. It has value, most of it isn't intrinsic though.
gridlockd 7y ago
The original 10$ aren't "gone", they're held in reserve in the form of bank deposits and government bonds. If you hold Libra, you supposedly have a claim against those. This is unlike a fractional-reserve bank, which can turn those most of those $10 into loans of any sort and still pretend it's cash that's available at any time.
- devoply 7y ago
  Not just one loan, like 10 loans.
  - deleted 7y ago
    [deleted]
- benj111 7y ago
  You know a bond is a loan? Why is a Libra loan to the government different to a fractional reserve loan of any sort?
  - wcoenen 7y ago
    Short term US government bonds are extremely liquid and low risk; unlike other loans they are easy to convert into dollars. Presumably any other government bonds in the libra reserve (e.g. german bunds for euro?) would be selected to have the same property.
  - gridlockd 7y ago
    A government bond issued in the countries own currency has no risk of default and is highly liquid. An ordinary loan such as a mortgage has poor liquidity and a high risk of default in case of turmoil.
    - benj111 7y ago
      "A government bond issued in the countries own currency has no risk of default" That is very far from correct. And I still don't think the risk differential is enough to make them 2 different things.
tlb 7y ago
Every bank and credit card is also an unsanctioned mint. It works fine. The actual minting of money has not been a major factor in managing the money supply in a long time. It's all done by setting interest rates.
- tyre 7y ago
  > The actual minting of money has not been a major factor in managing the money supply in a long time. Very much not true. Quantitative easing, the process of minting money to inject liquidity into the economy, was a core tenet of the Obama administration’s* response to the Great Recession. Literally trillions of dollars created to purchase bonds and mortgage backed securities to prop up the economy. Edit: It was during the Obama administration but implemented by the Fed, which is independent of the White House administration (thank god.)
  - deleted 7y ago
    [deleted]
  - mushufasa 7y ago
    >> Very much not true ?? The parent comment is correct that about the 'actual minting of money' not being a huge factor, in the sense of printing dollars and coins. Quantitative easing increases the money supply, but not via physically printing money.
  - H8crilA 7y ago
    That's because interest rates were already at zero. Look over to what BOJ did - they straight up bought equity ETFs as a part of their qe, even more hardcore. Still, not much inflation!
    - whatshisface 7y ago
      QE controlled inflation by reducing the fractional reserve rate, thereby counteracting the minting of money with the reduction of credit-money.
  - iooi 7y ago
abecedarius 7y ago
There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price of Libra, right? Am I understanding things correctly? With the banks we're used to there's a potential tragedy of the commons in that their separate decisions all affect the shared money supply, which is indistinguishable, so one reason to have a central bank is to get some overall control of those distributed decisions. A distinct competing currency already under a single decision maker doesn't so obviously need that extra governance. I don't know, maybe it does, but I'd like to see the reason spelled out. (Hayek raised this point in his Denationalisation of Money.)
- bo1024 7y ago
  I think the plan for Libra is always to have its value tied to something stable (USD for sake of argument, but more complex in practice). Each libra would be backed by 1 dollar or whatever. (I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)
  - abecedarius 7y ago
    OK, but we're talking about cases where something goes wrong. What are some somethings? - Libra screws up and its value is unstable. Pissed-off customers switch to other currencies, at a loss. - Libra turns out to be a great stable currency while the Fed screws up so badly that everyone scrambles to get out of dollars. It's a giant disaster, but not one I'd describe as "Libra destabilizing the financial system" -- I'd call it them offering a lifeboat -- a well-run firm outcompeting a poor one. (This seems unlikely, and I'd hate to see Facebook become this powerful because I can't stand Facebook. It's just, in this scenario they'd have done a useful thing.) - Libra is so successful they gain a new effective monopoly, and then they fail or exploit their position. Is the worry something else? I don't understand money very well, for all that I've read multiple books, took ec in college, etc. There's so much BS around it.
elisharobinson 7y ago
the main reason why facebook went the route of stable coin is simple. What is the main reason for a currency holding value is a correlation between the currency and its military strength. Unlike other commodities which hold intrinsic utility , currencies have enforced utility. Facebook understands why most crypto currencies are volatile cause there is no authority to enforce utility, hence the problem of utility is solved. now comming to the reason why the FED is so strongly oposed to this, if enough people start using libra its a big FU to the US fed cause they cant nuke it without hurting themselves hence they want to kill it right now. For some context this is the same FED which allowed countless acts of financial loot run wild for decades. But now when they realise that its there ass thats on the line they flip out.
panarky 7y ago
> now they have $10 that they will absolutely put back into circulation to make additional money on, _and_ $10 worth of libra have been created This sounds dangerous and wrong, but the same thing happens if you buy a gift card or deposit cash into a checking account. Now you have an Amazon gift card or bank debit card for $100 _and_ Amazon or your bank has $100 that they'll put back into circulation. It's just how money works, it's nothing new with Libra.

DiseasedBadger 7y ago

What about that makes it better to be embargoed by Facebook? That's a dystopia no one needs.

TheRealPomax 7y ago
What about Libra is exclusive to Facebook? It's not "their" cryptocurrency, they just pitched the idea. The actual power behind libra is the Libra Association, which has a lot more scary companies participating.
- cmiles74 7y ago
  I don't find this at all convincing. I believe Facebook will be managing much of the physical hardware involved, likely in their existing data centers. IMHO, the Libra Association will boil down to Facebook and the payment processors who have signed on. This strikes me as very much Facebook's currency.
  - c-cube 7y ago
    Each of the 28 participants will run its own hardware and validator on it (there are hardware requirements on top of the 10M$). FB might control the only wallet, initially, but not the validators.

traek 7y ago

This is how every bank works.

politician 7y ago
Fractional reserve banking usually requires some non-zero percentage of deposits to be withheld.
- gridlockd 7y ago
  In virtually all developed nations, the requirement is either zero or single-digit percent.
  - benj111 7y ago
    zero? What happens when someone wants to make a withdrawal?
    - rtkwe 7y ago
      The operative word there is requirement. Banks in 0% reserve countries don't have to keep cash around but do to serve as their actual functions as banks.
      - benj111 7y ago
        What countries are we talking about here? As far as I'm aware most developed nations have capital requirements for the banks. Whilst maybe not stating a minimum % reserve, in practice they do need to keep reserves for those capital requirements.
        rtkwe 7y ago
        I don't know I was just answering your question about deposits.
    - stephen_g 7y ago

buboard 7y ago

But i thought each libra must be backed by real money? i.e. when they sell 10 libra the 10 dollars go to the libra fund, and cant really circulate (but can be invested)

TheRealPomax 7y ago
But without Facebook (or any of the Libra association members that aren't already financial institutions) starting a bank, and then for obvious reasons being forced by law to split that off from their parent company as an independent entity, why would anyone expect banking laws to apply?
- buboard 7y ago
  It's not banking laws at all, it is the way they set up the association, I presume precisely to avoid fears like this. I think there are not clear laws yet about this kind of backed stablecoins. However, their reserve will be 100% , which is way more than any bank.
  - redorb 7y ago
    I feel like this is E-gold 2.0 maybe 3.0 with BTC being 2.0 https://en.wikipedia.org/wiki/E-gold https://en.wikipedia.org/wiki/E-gold
    - buboard 7y ago
      E-gold was a scam IIRC, while libra's assets : > the assets in the Libra Reserve will be held by a geographically distributed network of custodians with investment-grade credit rating to provide both security and decentralization of the assets. And BTC is not backed by anything, it has intrinsic value now so it's wrong to call it a scam.
      - benj111 7y ago
        What is the intrinsic value of btc? I can't eat it, use it to heat my house. It has value, most of it isn't intrinsic though.

gridlockd 7y ago

The original 10$ aren't "gone", they're held in reserve in the form of bank deposits and government bonds. If you hold Libra, you supposedly have a claim against those. This is unlike a fractional-reserve bank, which can turn those most of those $10 into loans of any sort and still pretend it's cash that's available at any time.

devoply 7y ago
Not just one loan, like 10 loans.
- deleted 7y ago
  [deleted]
benj111 7y ago
You know a bond is a loan? Why is a Libra loan to the government different to a fractional reserve loan of any sort?
- wcoenen 7y ago
  Short term US government bonds are extremely liquid and low risk; unlike other loans they are easy to convert into dollars. Presumably any other government bonds in the libra reserve (e.g. german bunds for euro?) would be selected to have the same property.
- gridlockd 7y ago
  A government bond issued in the countries own currency has no risk of default and is highly liquid. An ordinary loan such as a mortgage has poor liquidity and a high risk of default in case of turmoil.
  - benj111 7y ago
    "A government bond issued in the countries own currency has no risk of default" That is very far from correct. And I still don't think the risk differential is enough to make them 2 different things.

tlb 7y ago

Every bank and credit card is also an unsanctioned mint. It works fine. The actual minting of money has not been a major factor in managing the money supply in a long time. It's all done by setting interest rates.

tyre 7y ago
> The actual minting of money has not been a major factor in managing the money supply in a long time. Very much not true. Quantitative easing, the process of minting money to inject liquidity into the economy, was a core tenet of the Obama administration’s* response to the Great Recession. Literally trillions of dollars created to purchase bonds and mortgage backed securities to prop up the economy. Edit: It was during the Obama administration but implemented by the Fed, which is independent of the White House administration (thank god.)
- deleted 7y ago
  [deleted]
- mushufasa 7y ago
  >> Very much not true ?? The parent comment is correct that about the 'actual minting of money' not being a huge factor, in the sense of printing dollars and coins. Quantitative easing increases the money supply, but not via physically printing money.
- H8crilA 7y ago
  That's because interest rates were already at zero. Look over to what BOJ did - they straight up bought equity ETFs as a part of their qe, even more hardcore. Still, not much inflation!
  - whatshisface 7y ago
    QE controlled inflation by reducing the fractional reserve rate, thereby counteracting the minting of money with the reduction of credit-money.
- iooi 7y ago

abecedarius 7y ago

There's a difference that could be important: Libra is effectively a bank, and like other banks creates money, but the new money is not denominated in dollars, it's in Libra. If American banks create too many dollars, that's a problem for every American, since Americans up to now have been pretty much stuck with using dollars. If Libra mismanages their supply and reserves, the main effect will be on the market price of Libra, right? Am I understanding things correctly? With the banks we're used to there's a potential tragedy of the commons in that their separate decisions all affect the shared money supply, which is indistinguishable, so one reason to have a central bank is to get some overall control of those distributed decisions. A distinct competing currency already under a single decision maker doesn't so obviously need that extra governance. I don't know, maybe it does, but I'd like to see the reason spelled out. (Hayek raised this point in his Denationalisation of Money.)

bo1024 7y ago
I think the plan for Libra is always to have its value tied to something stable (USD for sake of argument, but more complex in practice). Each libra would be backed by 1 dollar or whatever. (I'm not sure if the plan is that those dollars have to sit in reserve like some gold standard, but presumably eventually the temptation to use a fractional reserve would be too great.)
- abecedarius 7y ago
  OK, but we're talking about cases where something goes wrong. What are some somethings? - Libra screws up and its value is unstable. Pissed-off customers switch to other currencies, at a loss. - Libra turns out to be a great stable currency while the Fed screws up so badly that everyone scrambles to get out of dollars. It's a giant disaster, but not one I'd describe as "Libra destabilizing the financial system" -- I'd call it them offering a lifeboat -- a well-run firm outcompeting a poor one. (This seems unlikely, and I'd hate to see Facebook become this powerful because I can't stand Facebook. It's just, in this scenario they'd have done a useful thing.) - Libra is so successful they gain a new effective monopoly, and then they fail or exploit their position. Is the worry something else? I don't understand money very well, for all that I've read multiple books, took ec in college, etc. There's so much BS around it.

elisharobinson 7y ago

the main reason why facebook went the route of stable coin is simple. What is the main reason for a currency holding value is a correlation between the currency and its military strength. Unlike other commodities which hold intrinsic utility , currencies have enforced utility. Facebook understands why most crypto currencies are volatile cause there is no authority to enforce utility, hence the problem of utility is solved. now comming to the reason why the FED is so strongly oposed to this, if enough people start using libra its a big FU to the US fed cause they cant nuke it without hurting themselves hence they want to kill it right now. For some context this is the same FED which allowed countless acts of financial loot run wild for decades. But now when they realise that its there ass thats on the line they flip out.

panarky 7y ago

> now they have $10 that they will absolutely put back into circulation to make additional money on, _and_ $10 worth of libra have been created This sounds dangerous and wrong, but the same thing happens if you buy a gift card or deposit cash into a checking account. Now you have an Amazon gift card or bank debit card for $100 _and_ Amazon or your bank has $100 that they'll put back into circulation. It's just how money works, it's nothing new with Libra.