On Tuesday, Facebook, in partnership with a surfeit of other large and powerful corporations, including Uber, Spotify, PayPal and VISA, announced that it would lead the effort to create a new global currency called Libra. “We believe,” says the organization that will govern the currency, “that the world needs a global, digitally native currency that brings together the attributes of the world’s best currencies: stability, low inflation, wide global acceptance and fungibility.”
As far as I can tell, Facebook aims to build a new payments and currency system using blockchain technology. Facebook is starting a subsidiary, Calibra, to “provide financial services” to individuals and businesses, including saving, spending and sending money. The actual standards for the currency will be managed by a nonprofit in Switzerland called the Libra Association. The currency will have its own central bank known as the Libra Reserve, and the board will be the committee of corporations that helped set it up.
There are already such alternative currencies — known as cryptocurrencies — in existence, such as Bitcoin and Ripple, but this one will be different. Today, cryptocurrencies are backed solely by the willingness of users to accept them, not because they have any intrinsic value or are backed by any government. This makes such currencies unstable. Libra, however, will be backed by reserves: If a user buys a dollar of Libra, that dollar will presumably be held in reserve somewhere, ready to be honored when someone sells that Libra. Moreover, while most cryptocurrencies are hard to use, Libra promises to be user-friendly and embedded into Facebook and WhatsApp.