The U.S. Dollar Will Back 50% of Libra, Facebook’s Cryptocurrency
The U.S. dollar will represent 50% of the backing for Facebook’s proposed cryptocurrency, according to reports from Reuters. The Libra Reserve will also have support from the euro, the yen, the Singapore dollar and sterling.
Until now, the Libra Association has simply said the digital currency would be backed by “a reserve of real assets,” not specifying what those assets would be. When explaining how the Reserve works, the association says, “The actual assets will be a collection of low-volatility assets, including bank deposits and government securities in currencies from stable and reputable central banks.”
Since the cryptocurrency is backed by multiple assets, each Libra coin will not have an assigned value. This also might make the currency less susceptible to an economic crisis. If one backing currency falls dramatically, the others should help offset the decline.
The trouble with existing cryptocurrencies, such as Bitcoin and Ether, is that they do not have real assets backing them. This creates large shifts in valuations, which makes for a tricky investment environment.
Other digital currencies, such as Wells Fargo Digital Cash, JPM Coin and the speculated Walmart Coin are tied solely to the U.S. dollar. Thus, they are dependent on the health and growth of the U.S. economy. The Libra Association is hoping to bridge the gap between both structures to create a sustainable-yet-profitable investment opportunity.