Libra Reserve Basket will be backed by 5 Fiat Currencies: the US Dollar has 50% Role
After all, Libra is going to be affected by the US Dollar as the major portion is fulfilled. The Dollar and the US regulators will have a big role in the price of the Facebook digital asset. The Chinese national fiat currency has no place at all as reported by Der Spiegel, the German newspaper, on Friday.
Libra Reserve Basket
Facebook has sent a letter to Fabio De Masi, a German regulator and a politician, in which they mention which currencies are going to be the part of Libra’s reserve basket. These include the US dollar by 50%, Euro by 18%, the yen by 14%, Singapore dollar by 7% and British Pound by 11%.
The Chinese currency called yuan is not the part of its basket as the firm and the US officials do not want that the Chinese economy will have any effect on this. China has recently issued its digital currency that is considered as a competitor of Libra. These are the following reasons for the absence of yuan in the basket.
The spokesperson of the Libra association said:
The Libra Reserve is expected to be a fungible pool of cash and very short-term government securities that are expected to be denominated in U.S. dollars, euros, Japanese yen, British pound sterling and Singapore dollars. We are not commenting on the specific breakdown of the Libra Reserve.
The Purpose is to minimize the Volatility
Bitcoin and other top cryptocurrencies are volatile in nature and the price waves up and down refuting the predictions. As you know, Bitcoin is slumping nowadays and there seems no particular reason for this dumping. In some cases, traders have to wait a long time to book a handsome amount of profit due to unpredicted movements.
Facebook is planning to reduce the volatility level of its cryptocurrency to a maximum level. They are going to launch it as a stable coin. It is pegged to traditional fiat currencies to nullify the effect of volatility.
Libra is considered as a threat to Traditional Currencies
This project is not only the initiative of one company but its partners include the big giant firms of the globe. The prominent companies included Visa, Mastercard, and PayPal. So it will definitely engage the millions of users across the world.
As a result of this, the governments have concerns over this because Libra may affect the traditional fiat currencies. And we have seen that the US regulators are very curious about this and investigating from the time of its announcement.
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