Economics of Libra

Is anyone aware of where is the best place to find information about the currently proposed economics of the Libra project?

I found this video: https://www.youtube.com/watch?v=wd0eXDWl7WA
Slide deck: https://www.slideshare.net/LukeWalsh15/economics-of-libra

The questions top-of-mind for me are the ones that the association has likely been discussing, but I can’t find online, such as…

  • Will a composition of multiple fiat currencies back each Libra token, or will there be multiple Libra tokens representing each currency with the ability to exchange between these?
  • If there is an aggregate token that combines multiple currencies into one reserve, how will this account for fluctuations in the exchange rates between the underlying fiat currencies?
  • What money management requirements will be imposed on the investment management strategy for the Libra reserve?
  • Will Libra benefit people who prefer to use Bitcoin or another non-fiat store of value or is the project strictly targeted at transmission of value represented by fiat?

Hi, @LukeWalsh. If you haven’t yet, you might read this white paper: https://libra.org/en-US/wp-content/uploads/sites/23/2019/08/TheLibraReserve_en_US_Rev0814.pdf.

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Thank you @jd119! You answered at least one of my questions, it looks like the project is still being actively worked on :). What is the best place to follow the meetings that the association is having in order to stay up-to-date?

I’m interested to keep learning about the questions above – though at least #1 one seems to be decided based on the existing marketing materials – including this paper: it sounds like there will be one Libra token although reserves are held in multiple currencies – not that there will be multiple Libra tokens representing each fiat currency.

The second also seems to be answered in one sense: the value is expected to fluctuate with respect to individual currencies, this speaks to a more static reserve makeup than dynamic, however I also see that the reserve is subject to change, so #2 is still something I’m not quite understanding.

#3 is mainly open for me because I see that the idea is to invest in stable securities but I don’t see what the hard requirements are, my guess is these are necessary outputs from the association before launch & I’m curious if any have been set.

I’m curious what is done with the excess profits that are earned in interest from these investments since it’s only mentioned what will be done first: used to fund the operations of the association, and what will NOT be done: “Users of Libra do not receive a return from the reserve.” I see something about investment tokens, it seems like the excess profits will aggregate into whoever is holding these investment tokens, perhaps through distribution of additional Libra? Whoever is holding these investment tokens seems to directly create a loop of risk/reward incentives since naturally the investors would want to make sure they are able to earn money through investing the users’ money. I can’t see if there has been an idea to give the excess money back to users, though, which would be implicit if the excess funds were instead added to the reserve without increasing the general token pool.

#3 may hinge on a few things:

  • #2: which central banks are chosen, in what proportion, and how will/won’t that change over time?
  • what timeframe of securities are invested in?
  • will there be the freedom for the Libra reserve money managers to buy and sell these securities in the open market, to only buy, or to only buy directly from governments?
  • will there be the freedom for the Libra reserve money managers to increase the leverage on these government securities?
  • what happens to the accrued value that isn’t spent on the operating expenses of the association (is this the purpose of investor tokens)?

#4 seems to be an existing open question. It seems possible Libra may provide non-fiat users with a useful way to interact with merchants. Although I can’t currently imagine holding fiat currencies through government bonds and giving away the interest I earn in exchange for lending to someone as risky as a government, but, IF [I could simply exchange my held assets for Libra at the point of payment] then Libra could be a valuable way for me to 1/ Pay with lower fees & 2/ hold value in the method of my choosing.

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The new whitepaper gets into a lot more detail about the economics at play with Libra: https://libra.org/en-US/wp-content/uploads/sites/23/2020/04/Libra_WhitePaperV2_April2020.pdf

It does seem like there’s been a shift in direction on #1 focusing now on the existence of stablecoins in addition to the initial direction of the currency basket token which will still exist, so it seems both ideas will be present.

I’m also seeing a shift in language toward a more fixed rather than dynamic reserve for the libra token: #2 still seems slightly open because the language in the new white paper mentions the composition will be “…defined in terms of fixed nominal weights, such as the ratios in the Special Drawing Rights maintained by the International Money Fund (IMF).” I’m curious if this will be exactly the IMF ratios or if these are separate association ratios subject to change based on a vote. It seems that any rebalancing of the reserve would have the potential to influence large foreign exchange rate moves in the open markets & I’m curious how this potential for conflict of interest will be managed – either by simply following the IMF ratios exactly or something else.

I’m interested in these questions as well, currently seems that besides the whitepaper (that is more an overview) there is no detailed information. Probably because is an ongoing process with the regulators and it’s not public yet.
@jd119 Is this correct ?

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