Libra’s technical features are not what’s exciting

Much of the commentary about Facebook’s proposed Libra coin has focused on its defects as a cryptocurrency – centralised governance, weak privacy protections – or as a payment processing system – low throughput, inability to handle multiple currencies. I think it’s more interesting to examine the process for creating Libra rather than specific technical features.
But Libra is a work-in-progress. Its whitepaper describes aspirations, not technical design. Work has begun on only some of the aspirations, and they will have to be modified along the way to resolve conflicts, satisfy regulators, attract users and please investors. The Libra slated for release in 2020 will be only a trial-size sample of the grand vision, and mature Libra of 2025 could be quite different from what anyone expects today.
Of course, at this point Libra has not forged any powerful alliance. It has 28 backers, most of which have committed little more than their logos, and only a few of which are powerful. Both populist and progressive politicians have been negative and neither major technology companies nor banks have joined.
Although Libra has copied some features from cryptocurrencies, its rationale is precisely the opposite. Its competition is national currencies, not crypto. This is explicit. When the whitepaper describes providing currency to the 1.9 billion people now relying exclusively on cash, it means replacing the national currencies of countries like Nigeria, Mexico, Indonesia and Pakistan for the large majority of citizens.
While the initial design calls for 100% reserves in developed country currencies and government debt, that’s illusory, since its controllers can change the investments at any time. Any country that allows inflation or issues dubious debt can find its currency and debt dropped from reserves. Moreover, a successful Libra would likely switch to a fractional reserve system, with only enough national currency reserves for liquidity purposes, and currency backed either by loans and other risky assets, or nothing at all.
Libra is a complement to cryptocurrencies. Its blockchain design and Move programming language allows seamless interaction with crypto. One plausible scenario is that Libra succeeds in becoming the legal-tender medium of exchange for much of the traditional commerce in the world. On the other hand, if Libra fails, it will not be the last attempt to impose a rational global currency on a skeptical world. It may happen by gradual ceding of central bank and securities regulation to multinational entities, or by a new currency, or by negotiation among developed economy governments. The future of money is in play and Silicon Valley technocrats have just made a compelling move.
—Bloomberg