Libra: not a good idea

I present some objections in The Atlantic. The structure of Libra in Facebook’s white paper suggests something like a money market mutual fund with a floating net asset value. When you buy a Libra, you’re buying a share of this mutual fund, which you can transfer to others over the internet, using Facebook’s social network among other platforms. If enough people buy in, Libra could work as a currency—where the currency value is simply the relevant fraction of the assets in the mutual fund (the “Reserve”). The assets include national currencies and government bonds. The holder of a Libra takes currency risk but probably not much, especially if it is easy to exchange a Libra back into one’s national currency. The structure of Libra is open-ended enough that the “Libra Association”—a club of big corporations with a handful of nonprofits thrown in—could easily convert Libra into a bank by changing the portfolio mix and adding some risk. I imagine that Facebook’s/Libra’s lawyers are working hard to persuade regulators that Libra is not a money market mutual fund / bank so as to avoid the relevant regulations, and are gambling that the Libra Association’s structure as an international organization (located in Switzerland) with enormous assets (distributed around the world) will force (national) regulators to make concessions.

What could go wrong? Read here to find out.