Fed Economists Call Fears of Original Libra Stablecoin ‘Overstated’

Fed Economists Call Fears of Original Libra Stablecoin ‘Overstated’

Rep. Brad Sherman (D-Calif.) created a "Zuck Buck" graphic to describe his view of Libra. (House Financial Services Committee)

Economists at the Federal Reserve said an earlier version of , the frequently targeted by lawmakers and central bankers as an economic wrecking ball, was unlikely to have lived up to its sovereign currency-killer hype.

Calling “fears of a so-called global stablecoin” “overstated” in a published Monday, economists Garth Baughman and Jean Flemming say policymakers may have focused perhaps too acutely on the likely downside of the previous Libra iteration’s multiple currencies backing a new stablecoin. The pair modeled a so-called basket-backed stablecoin in a hypothetical scenario, evaluating the likely impact that stablecoin would have on the economy as well as the likelihood of it being adopted.

Critics argued Libra’s original plan to maintain its stablecoin’s value from multiple currency reserves could destabilize or even displace those underlying fiat currencies. U.S lawmakers the project, Australia’s central bank said and France’s finance minister Libra over fears it could oust sovereign currencies.

The Fed economists wrote that their own modeling discounts that possibility.

“Our model shows that although the basket may have the potential to become important and globally demanded, [the regular ebb and flow of fiat value and trade] make it such that the basket never dominates either of the component currencies,” they wrote. 

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