50% of each Libra coin will be backed by US dollars and short-term US government bonds, the company said in a letter to a left-wing German politician Fabio De Masi, Der Spiegel reported. 18% of Libra will be made of Euro and euro-dominated government bonds, while the remainder will be made of cash and government bonds from Japan (14%), the UK (11%), and Singapore (7%).
What does this mean? It means that for every Libra coin that Facebook issues, the company has to deposit foreign currency in this composition. Facebook had announced Libra as a stablecoin, that is, a cryptocurrency that is pegged to a basket of government-issued currencies to avoid the wild swings that have dogged other cryptocurrencies.
Any significant currencies that are missing? Yes! The Chinese Yuan.
Why? Probably because Facebook doesn’t want to compete with Chinese government’s own stablecoin DECP (Digital Currency Electronic Payment) which was announced earlier this month. Or it could be to mollify American politicians who fear Chinese influence on exports through a deliberately weakened yuan.
Are there any yuan-based stablecoins? Yes. Tether, a stablecoin firm, announced launch of CNH₮ a few days after the People Bank of China announced DECP. It is currently the only yuan-based stablecoin in the world, and is initially available only on the Ethereum blockchain.
Let’s get back to Libra. Who will govern it? Unlike other cryptocurrencies that are decentralised, Libra will be controlled by Swiss-based consortium of over 28 companies called the Libra Association. Each entity, having paid $10 million each, will have a say in how the currency is governed. It includes Mastercard, PayPal, Visa, Lyft, MercadoPago, Spotify AB, etc. Facebook’s rumoured goal is to rope 100 companies into the Libra Association.