Libra as a Fiat-Backed Cryptocurrency

Libra has shaken the financial establishment and the crypto world alike. The Libra White Paper has clearly shown the intentions of Facebook and the rest of backers. They aim at being a super-stable cryptocurrency to take the fears of consumers away and making it mainstream and global, so billions of people would use it on their daily transactions.

Libra is designed to be a stable digital cryptocurrency that will be fully backed by a reserve of real assets — the Libra Reserve — and supported by a competitive network of exchanges buying and selling Libra

The method they devised to ensure the stability of the Libra coin was giving it support with a collection of low-volatility assets, mainly bank notes, and government bonds, in a similar way to a money market fund.

To ensure Libra’s success, they also wanted to make their Platform almost cost-free for transactions, since they would face the competition of the current money transfer systems. They also would like to profit, while doing all these nice things for their customer base, so they plan to collect the earnings produced by what they call “Libra Reserve”.

Earnings of the Libra reserve, according to the White Paper, will be used to fulfil the objectives of the Libra Association.

Interest on the reserve assets will be used to cover the costs of the system, ensure low transaction fees, pay dividends to investors who provided capital to jumpstart the ecosystem [..], and support further growth and adoption.

Is Libra For Investors?

People willing to invest in Libra should weigh on this scenario. Libra may be backed but was devised as a digital currency to facilitate money transactions and not as a storage of value. If you want a low-volatility investment vehicle for your money, you should look for a real Money Market Fund. If you’ do not care about volatility, invest in bitcoin, gold, silver, and energy.

The Crypto world is tiny in comparison to fiat currencies. The FX market moves about 5 trillion dollars daily. In an article published by MarketWatch on Nov 28, 2017, although the total money amount changes depending on how it is defined. Using a broad money definition, which includes cryptocurrencies, gold, funds, and derivatives, the total amount reaches the quadrillions, a 1 and 15 zeros to the right.

We all know that currently, the cryptocurrency industry hasn’t reached its ten figures. Therefore, the crypto world means right now 0,001% of the total money in circulation. This is an industry in its infancy. If you’re young and not of the instant-satisfaction kind, the sensible thing is to slowly accumulate crypto assets. Buying regularly, with small weekly or monthly purchases, even when they move on a bearish trend, regular purchases will average the cost of your wallet, and protect you while the industry climbs its way to its true role as a significant share of the total money in circulation.

Fig 1 – Money in circulation and the crypto world in perspective. Source The Money Project (Click on it to enlarge it)