Libra the “Facebook coin” is a cryptocurrency managed by a group of industrial giants across various sectors with a Facebook as their most visible member. Cryptocurrency analyst Josef Tetek sees similarities between Libra and Special Drawing Rights (SDR), which is an accounting unit for government members of International Monetary Fund. Value of SDR is derived from value of underlying fiat currencies (USD, EUR, RMB, JPY, GBP).
Tetek comments on this regard: “Similarly, Libra will be a unit of account for users and merchants, and its value will be derived from the underlying basket of assets. The assets will be held in Libra Reserve and will consist of low-volatility, low-risk instruments such as fiat deposits and government securities. “ Tetek adds that “The Libra Reserve will be managed by Libra Association, consisting of 100 global corporations and selected NGOs. Members of the Libra Association will also be acting as Libra Blockchain validators, confirming each transaction and deciding the technological roadmap.“
The reason behind this is to avoid volatility of other cryptocurrencies and to ensure the stability of the “Facebook coin”. High volatility of cryptocurrencies is a target of most of their critics. Libra aims to solve this problem by deriving its value from low risk instruments as explained above. Libra will be a stable cryptocurrency in terms of fiat currencies. Connection to fiat currencies such as USD carries a burden as well. Libra will share the inflation rate of around 2-3 % with its underlying currencies. This will be a huge benefit for people living in underdeveloped countries where inflation rate often exceeds 10 %, but there is little to no added value for people that already using stable fiat currencies such as USD, EUR, etc.