| > funds are invested in "a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks." They're underestimating how difficult it will be to avoid losing money. Bank deposits So what if Facebook and their partners don't park their reserves in mortgages and derivatives if their banking intermediaries do? Banks routinely go insolvent in recessions and financial crises. Short-term government securities Which are currently paying negative interest rates in "stable" and "reputable" nations like Germany and Japan. A "negative interest rate" means you buy a government obligation for $1000, and a year later you get back $997. Can Libra reserves earn a high enough return to (a) fund their admin and security apparatus, (b) cover insolvent partners and institutions, and (c) cover fraud and abuse? It's clear from the whitepaper that there is no upside to holding this currency, but it's not at all clear that it won't "break the buck" and actually lose money. Sooner or later, FB partners will go to a fractional reserve model and effectively convert this "cryptocurrency" into a vehicle for inflating the money supply to a multiple of actual reserves by issuing debt. My bet is this will happen sooner rather than later, because there's zero profit in sitting on giant pile of short-term cash. |