Federal Reserve economists said the Facebook-linked stablecoin featured in a previous version of Libra which was often targeted by lawmakers and bankers as a product that would destroy the economy, probably wasn't up to its fame as a currency killer.
The results after a new simulation of an economic model that includes Libra's original stablecoin
Calling "fears for a so-called global stablecoin" "overstated" in a new report released Monday, economists Garth Baughman and Jean Flemming say politicians may have focused perhaps too sharply on the likely downside of a Libra stablecoin as presented in previous versions of the project.
Scholars simulated a so-called stablecoin supported by a basket of currencies in a hypothetical scenario, evaluating the likely impact it would have on the economy and the probability that it would be adopted.
They attempted to verify whether Libra's original plan to stabilize the value of its stablecoin was actually able to destabilize or even change the structure of the underlying legal currencies.
US lawmakers attempted to freeze the project, the Australian central bank said no one would use it and the French finance minister threatened to freeze Libra for fear that it would oust sovereign currencies.
Fed economists now say that their model "shows that although the basket may have the potential to become important and globally required, [the regular ebb and flow of value and fiat trade] ensure that it never dominates. none of the component currencies, ”they wrote. Their explanation may be somewhat controversial.
Have politicians been too aggressive towards the Libra project?
Libra project leaders abandoned plans for a single stablecoin supported by a basket of currencies in April 2020, yielding to pressure from regulators. Now, Libra's "global stablecoin" will be a basket of other stablecoins supported by legal currencies in which invest.
But the Fed document, written in February and apparently updated a month after Libra's substantial change of direction, still raises questions about whether politicians have moved too aggressively against that tech project they've been holding up for months.
"A simpler question arises: does a basket currency actually provide substantial value compared to the current system?" they asked. The two analysts found that, under certain circumstances, it could indeed be the case.
"Although the basket's currency will never dominate the sovereign currencies it includes, it appears that there can be substantial benefits to global economic well-being if many sellers accept the basket as payment," they wrote.
