About a year ago, Facebook announced it would create a global digital currency called "Libra" to help the billions of people around the world who lacked access to basic financial services

The problem is still significant not just in developing countries but also in the United States, where almost a quarter of the population is unbanked or underbanked, who spend 10% of their income just to use their income. In more underdeveloped countries, the problem is exponentially more critical. 

Whether Libra can succeed will depend on several factors, such as:

  • Whether it is easy to cross the "cash/digital divide" - is it easy and inexpensive to obtain and use Libra.
  • The robustness of the network - is it widely used and secured
  • Whether other services such as small amounts of credit are offered 

However, Facebook's libra cryptocurrency finally moved forward with the formal beginning of its license application, but its plans only vaguely resemble its original controversial announcement last summer. The changes amount to a shift in focus from providing open-source software that anyone can build on as they see fit, to a much more controlled system.

The biggest change is that the proposal now contemplates a series of digital stable coins, each backed by a single sovereign currency, such as the U.S. dollar, rather than a single stable coin backed by a basket of currencies. The concept of a multicurrency stable coin is still present but only as a “digital composite of some of the single currency stable coins available on the Libra network.” This change addresses many of the practical problems in the original proposal and it should make Libra easier to use. It also could be seen as a scaling back of Facebook’s ambitions, for the proposal is now more like a PayPal with a different technological backbone than a competitor to sovereign currencies.

The second change is enhanced compliance procedures to address concerns that the network could be used for money laundering and financing illicit activity. The revised proposal says some aspects of compliance will be built into the system itself and will be automated; it also sets forth diligence and screening procedures that were absent from the original proposal.

The third change is greater detail on how the Libra Association will protect the reserve of sovereign currencies that it receives in exchange for issuing Libra stable coins, which addresses safety and soundness concerns. Finally, the original idea of transitioning within five years from a “permissioned” blockchain system to a “permissionless” system has been abandoned.

Libra's blockchain will also be significantly more centralised than expected, forcing companies to comply with regulations or face removal.

The bitcoin and cryptocurrency community reacted to the news, announced by the Facebook-led non-profit Libra Association, with a mixture of glee and scorn.

"This is good for bitcoin," said Mati Greenspan, the founder of financial advisory firm Quantum Economics, in a note to clients.

"Facebook's new watered-down version of libra is an admission that even they are not able to replicate the immaculate conception of bitcoin and that their blockchain will no longer be a serious competitor to any existing crypto-asset. It will, however, be a serious contender to Paypal, Venmo, and Square," Greenspan said, adding he's "not surprised that bitcoin is up 6%."

"The main downside of these changes is that the system is less open, and less decentralized, therefore the bitcoin community will probably disregard this as another centralized project," said Yoni Assia, the chief executive of brokerage eToro.

The most significant consequence of the Libra proposal to date has been to accelerate work on the development of central bank digital currencies (CBDC – which we explained here). Many nations are now exploring the idea. Officials in many countries, including Chairman Powell of the Federal Reserve, have acknowledged that Libra has affected this work.

China is the first major country to begin testing a CBDC. It seems that its primary purpose is not for financial inclusion or efficiency gains, but rather as a part of its efforts to make the RMB a more significant international currency. China, as well as some European officials, also see the development of CBDCs as a means to reduce the dominance of the U.S. dollar in international payments.

One thing is abundantly clear however, and that is no one remains even close to challenging Bitcoin’s reign as the king of the ‘store of value’ space at a time when central banks are debasing currencies everywhere.  The same goes for Ethereum’s reign as the king of DeFi (decentralised finance) at a time when many are looking for alternatives for traditional banking as traditional banks look more and more expensive, and more and more exposed to a financial meltdown.  Our own Gold Standard (AUS) and Silver Standard (AGS) bullion backed tokens are a classic example of using the Ethereum blockchain to securely digitise financial hard assets.  As trust in government and banks hits all-time lows, the decentralisation these platforms provide and Libra does not, will prevail.