As the clock ticks down to its highly anticipated launch, there has been growing speculation about what the currencies backing Facebook Libra will be. The social media giant has now revealed exactly which types of fiat money its reserves will consist of.
A List of the Currencies Backing Facebook Libra
The information came in a letter sent by Facebook to German politician Fabio de Masi. In this letter, they confirmed that 50% of their new digital currency is to be backed by US Dollars. Facebook will hold reserves of this amount in the form of short-term Government bonds and traditional cash deposits.
The other currencies mentioned are the Euro (18%), British Pound (11%), Japanese Yen (14%) and Singapore Dollar (7%). One coin that is notably absent from the basket of assets is the Chinese Yuan. It has been suggested that this has been left out on purpose.
With global trade wars between the US and China still going on, Facebook may feel that leaving out the Yuan helps them. There has been some controversy over the Libra currency already. Going ahead without including the Yuan might help them to get American regulators on their side.
Earlier, Facebook founder Mark Zuckerberg has sent a letter to US senators about how the Yuan could have an influence on the cryptocurrency market. Senator Mark Warner got involved in the debate, when he asked for the Yuan to be left off the list of currencies.
Why Are They Doing This?
The main reason for backing a cryptocurrency with traditional, fiat money is to lower the price volatility. This is the approach taken by stablecoins such as Tether (USDT) and Globcoin (GLX). The range of currencies backing Facebook Libra means that it uses the concept of a basket of assets.
By pegging a cryptocurrency to a real-world asset, it helps to reduce the volatility that affects the like of Bitcoin (BTC) so much. Some analysts predict that we see more stablecoins based on fiat currencies and other assets, such as gold.
The launch date for the Facebook Libra currency is set to be in 2020. However, there have already been signs from political figures in Europe that it could struggle to receive approval.
The response from Facebook has been to welcome all feedback from regulators. It remains to be seen what compromises can be reached to ensure that Libra is made widely available.
Stablecoins like Libra look to be growing in popularity. Yet, there remain some regulatory issues to be cleared up before the Facebook currency can become a success.