The Facebook-led digital currency project Libra has announced a drastic downgrading of the scope of its initial vision, overhauling several elements of the project in an attempt to placate global regulators.
On Thursday, the 22-strong Libra Association, which lost a flurry of high-profile members last year over concerns that the initiative might hurt monetary stability or facilitate money-laundering, unveiled a substantially diminished “Libra 2.0”, designed to appease wary regulators. It added that it was still aiming to launch by the end of 2020.
In particular, the association outlined plans to offer a set of digital versions of single currencies, such as a Libra dollar or a Libra euro, that would be fully backed one to one by cash or cash equivalents, plus support from a capital buffer.
It also said it would support central bank digital currencies, as central banks continue to circle the space.
The shift follows a backlash from US watchdogs over its initial proposals to create a synthetic coin backed by a basket of currencies, which prompted concerns about foreign exchange risks and raised questions as to how such a basket would be weighted. Libra said it was still aiming to create a “multi-coin currency”, though this would be a “digital composite” of some of its existing single-currency coins.
In a move that will irk diehard crypto enthusiasts, the association also said that it would forgo its ambitions to move to a fully “permissionless” system, in which anyone could participate and no single authority would have control, as was the original vision of bitcoin.
The concessions come as Libra said it was formally starting the process of applying for a licence with the Financial Markets Supervisory Authority in Switzerland, where the non-profit group is based. On Tuesday, the G20’s Financial Stability Board published a report urging the world’s leading economies to redraw their policies to ensure that digital currencies, which can be sent cross-border, are fully regulated.
To address money-laundering and terrorism financing concerns, Libra will set up a “financial intelligence unit” and vet digital wallets looking to build on the network, restricting unlicensed players from doing so, at least at first, according to its vice-chairman Dante Disparte. It would also bake compliance into the underlying technology, he said.
“Our anticipation and hope is that by the end of 2020 the Libra payment system is licensed, live and operationally ready,” he added.
Announced in June last year, the Libra project has faced hostility from the outset, including for its association with Facebook, which spearheaded the project but continues to battle privacy scandals. Mark Zuckerberg, Facebook’s chief executive, received a brutal grilling from Congress in October.
Such fears have prompted eight of the project’s founding members including Visa, Vodafone, eBay and PayPal to withdraw their backing, raising questions over the its future.
The Libra association has since set about replenishing its numbers, announcing the addition of ecommerce group Shopify in February. It said on Thursday that it was still seeking to hire an independent head, an appointment that had been expected earlier this year, according to two people familiar with the situation.
Thursday’s changes leave multiple questions unanswered. Some have raised fears that a move to single-currency coins could hit Libra and users looking to convert currencies with additional costs.
It is also unclear how capital buffers would be funded or by whom, and how the organisation would remain competitive if it had to pass on the costs of negative collateral rates to customers in the form of transaction fees.
This article has been amended to reflect the fact that Libra’s multi-coin currency will be available at the point of the project’s launch
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