Liberated by Libra - A virtual history

It’s the year 2030, ten years after the controversial launch of social media currency Libra. Few people could have anticipated at the time what a central role the new currency would play in world events over that decade.

What’s in a name?

In the build-up to the launch people were not sure what to call this new innovation. It wasn’t a cryptocurrency because it was clear that people were moving real money around the economy and there was no mining involved. Sending a Libra to a friend was more like sending a little basket of dollars, euros, pounds and yen. It was really just a digital wallet closer to PayPal and Revolut than it was to Bitcoin. The underlying technology had a few blockchain buzzwords flying around, but it was really just a private payments ledger governed by a few big well-known financial companies. One of the main applications being discussed was to embed the new currency in messaging applications such as WhatsApp so people eventually settled on describing Libra as a “social media currency”.

Finally the Chinese could make a valid claim that this time it was their ideas that were being adopted by the West. Several years earlier, Ten Cent had launched WeChat and had then added WePay to convert the Chinese social media platform into a financial ecosystem.

Cool. I’ve got some Libra on my phone!

The Western world was a land of many currencies, languages and cultures. Suddenly they had a currency that could be easily moved across borders with no transaction costs (no, not the Euro – I’m talking about Libra!). People without bank accounts that were paid in cash could take their cash along to a local store and use it to top up their Libra wallet using a barcode on their phone. This unbanked community were suddenly part of a digital ecosystem and could pay for items online and avoid the security risk of carrying their cash around. In fact Libra quickly became a substitute for cash. Strangers could exchange money through the barcode on their phones, pay for things in shops and online and employers also started paying cleaners and laborers directly through a Libra top-up instead of cash.

A new financial ecosystem emerges

The fintech revolution suddenly shifted its focus to the Libra ecosystem which was designed to be open to innovation from the outset. Instead of shopping around for the best interest rates in their home economy, customers were now able to borrow and invest in Libra across the globe. A lot of money started being swept out of traditional bank accounts that were paying zero interest into Libra savings accounts paying a healthier interest rate. In response, the banks were forced to join the Libra ecosystem and offer competitive rates for Libra deposits and loans. Insurance companies started selling products tailored to the needs of consumers in the Libra ecosystem. People were still incurring transaction costs converting money from their home currency into Libra so people eventually started demanding that they be paid their salary directly in Libra. Worse still for the banks, some people started having their salary paid directly into their Libra wallet forcing banks to bid with high interest rates to regain access to what was previously their main source of funding.

Libra takes over

Prices in shops and online were initially shown in both Libra and the local currency but before long were shown only in Libra. Libra was still just a basket of currencies so the central banks and clearing banks still needed to manage the money supply and hedging of the local currencies in the background. By 2028, the entire western developed-world economy that the consumers and businesses took part in was pretty much Libra based. In the same way English had provided a common language to enable people to conduct business globally, Libra was now the lingua franca of the financial system.

The politics of Libra

Unsurprisingly this also had some implications for the political landscape. The Euro lost half of its reason for existing. The global economy had now adopted a single global currency which created price transparency and reduced transaction costs. The Euro still retained its second purpose however of instilling monetary policy discipline across its members. And because the Euro was a key component of the Libra basket there was still a strong incentive for countries to stay inside the Euro.

The dollar on the other hand was undergoing a major identity crisis. The Libra was de facto the world’s new reserve currency and even the energy industry started measuring its reserves in “petroLibras”. The Libra committee which governed the underlying reserving system of the Libra now had a major role to play in deciding how much of its currency basket and reserves were weighted to each major currency. The Libra balance sheet was now the World’s largest purchaser of government debt and treasury bills.

Looking back it's crazy to think that people used to carry banknotes with lots of different currencies around in their wallets and that prices were shown in different currencies in different countries. It still cost a surprisingly large amount of Libra to buy a cup of coffee in Oslo however.