The questions of exactly what money is and who will control it have become much more interesting, as Facebook unveils plans for a frictionless cryptocurrency called Libra. Facebook describes it as “a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets.”
Federal and local regulators in the U.S. and abroad continue to struggle with how or whether to regulate cryptocurrencies. When asked about Libra, Federal Reserve Chairman Jerome Powell responded that the Fed has discussed it with Facebook, although the Fed does not have plenary authority over cryptocurrency. Its authority is through consumer protection and money laundering avenues. The Fed does, however, provide input on payment systems in the U.S. and internationally.
Libra offers a new challenge, as it differs from other blockchain technologies like Bitcoin. Libra would be backed by a basket of securities that would make it a less volatile currency. Users exchange their dollars for Libras and would not fear the vast changes in currency value. They would be able to make large or microtransactions, domestic or international, with low fees and great ease. A nonprofit organization would manage reserves and the transactions. The many members of the nonprofit organization include Mastercard, PayPal, Visa, several venture capitalist firms, Vodafone, and Uber. They pay a fee to become members, which is the reserve.
Will Libra and other cryptocurrencies replace central banks? Not likely in the near future, because blockchain technology is still in its infancy, and the regulatory picture has hardly been taken yet. It is not clear whether the SEC will regulate cryptocurrencies as securities, or the Federal Commodities Trading Commission will regulate them as commodities. Countries will likely regulate to protect their sovereign currencies and privacy concerns, and to prevent money laundering and funding of terrorism.
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