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Alice in Libraland

The reaction in June 2019 to the announcement of Facebook’s planned “stablecoin" was immediate and almost universally negative, owing both to the half-baked quality of the proposal and negative perceptions of the parent company. But while neither problem has been fixed, it may no longer matter: central banks and other more experienced private entities are taking the digital-payments baton.

BERKELEY – Talk about “techlash.” The reaction last June to the announcement of Facebook’s planned “stablecoin,” Libra, was nothing short of neck-snapping. (I plead guilty to having engaged in some snapping, or sniping, myself.) That reaction reflected negative perceptions of the parent company. There were fears that Facebook would exploit consumers’ dependence on Libra to harvest data on their use of it and sell or deploy the data in its own interest, say, to drive additional traffic to its platform.

To assuage such concerns, Facebook created a separate subsidiary, Calibra, to develop the currency. It established an independent Libra Association to provide management oversight. As it quickly learned, however, assuaging concerns is not the same as eliminating them.

It didn’t help that the proposal itself was half-baked. It wasn’t clear that the Calibra team understood the difficulty of holding a stablecoin stable. Its white paper didn’t specify exactly what liquid and safe assets the Libra Association would hold as reserves, for use in buying and selling the stablecoin if its price fluctuated. It didn’t acknowledge that what are advertised as safe and liquid assets can quite suddenly become illiquid and unsafe.

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