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Will Facebook’s Libra Turn into a Cancer?

Facebook's planned cyber currency, Libra, is little more than a glorified currency board – the failed arrangement that in 2001 caused the largest sovereign default the world had ever seen. A major risk is devaluation – and the problems don't stop there.

LONDON – When it announced its plans to launch a cyber currency, Facebook emphasized that its Libra will benefit “people with less money [who] pay more for financial services,” especially in developing countries. But when one compares Facebook’s current blueprint to those same countries’ experience, Libra starts to look like a hazard.

Consider Argentina, which in April 1991 adopted a novel monetary arrangement: it would peg the value of the Argentine peso to that of the United States dollar, and it would issue pesos only in exchange for dollars. So the peso would now be fully “backed” by reliable American greenbacks, enabling Argentina to end a century of monetary instability.

At first, markets cheered. The system worked – until it didn’t. A decade later, Argentina was forced first to devalue and then float the peso, which lost two-thirds of its value in a matter of months. The political crisis that followed was so deep that Argentina went through four presidents in two weeks. And the default on its $82 billion sovereign debt was the largest the world had seen.