The story of Libra coin is going to evolve every day/week over the next few years and I plan to document it’s evolution with a series of posts of which this is the first one.
This post focuses on the monetary policy aspect of Libra v Bitcoin.
Libra is seeking to be what has become known in the industry as a ‘stable’ coin. The great attraction of stability in price is the certainty it gives to those who wish to use it for…what money is used for…which is a means of exchange a store of value and a unit of account.
In my mind however, the search for a ‘stable’ coin is like the quest for a perpetual motion machine. It’s a very nearly possible attractive idea but actually not possible.
The Libra coin will try to achieve stability by backing it’s issuance with a basket of fiat currencies and perhaps (we don’t know yet) some other ‘real world’ assets. So this may achieve stability relative to these assets, but how stable are they?
In this excellent article by Caitlin Long the proposition is put forward that (some) Fiat currencies are price stable but all are systemically unstable, whereas cryptocurrencies (some) are systemically stable but (at least for now) price unstable.
When considering the value of money in terms of it’s utility, I do not consider what money is used for but its properties and first among those is its supply and on this point cryptocurrencies with fixed supply are far better than Fiat.
It would seem to me that price stability will initially make Libra attractive, however, over the longer term systemic stability will be more highly valued. But it also does not have to be one or the other, people may transact in Libra (or other ‘stable’ coins) but keep their savings in Bitcoin or Digix or similar. The great thing is that people will start thinking about money a bit more and people will have choice.