Home / Capital & Crypto / Big Three Credit Rating Agency Fitch Touts Facebook’s Fiat-Backed Libra

Big Three Credit Rating Agency Fitch Touts Facebook’s Fiat-Backed Libra

Last Updated March 4, 2021 2:37 PM
Francois Aure
Last Updated March 4, 2021 2:37 PM

As the wave of interest in Facebook’s stablecoin Libra continues around the world, it appears that Mark Zuckerberg’s foray into digital currencies has a new and powerful ally. Fitch, one of the big three credit rating agencies, gave it a thumbs up in a recent report .

Fitch in Love with Facebook’s Fiat-Backed Libra

What is it precisely that Fitch has fallen in love with? Well, in praising the centralized token, Fitch focuses on Libra’s fiat-backed status:

“A potential advantage of Libra versus other cryptocurrencies is its full backing by a reserve basket of fiat currency assets managed in a reserve fund implemented like a currency board. The size of the reserve fund will be a function of transactional demands, not an arbitrary supply limit or other algorithm as in other cryptocurrency implementations.”

Arbitrary Supply Limit Hurts Bitcoin

The fact that Fitch is writing off one of the core concepts of bitcoin as “arbitrary” is undoubtedly going to ruffle feathers in the cryptocurrency world. The very foundation of the world’s first digital currency is its deflationary quality. To justify its viewpoint, the rating agency suggests that Facebook’s Libra will reap long-term benefits from its fiat-backed status:

“These measures could preserve price stability, avoiding the speculative nature of existing cryptocurrencies and improving its utility as a medium of exchange and store of value, which is the key to long-term viability.”

Libra Association Cites “Unbanked” as Key Demographic

Evidently, Fitch believes Libra is going to function broadly, like a fiat currency. Ultimately, this is why they believe it has better functionality than bitcoin. A curious idea: why even bother to make a digital token? This dilemma prompted Joe Kernen of CNBC to outright state that Libra is “not a cryptocurrency at all.”

Likely aware of these criticisms, the Libra Association has done its best to justify the consortium’s existence. As the following Fitch report excerpt demonstrates, Facebook apparently has noble intentions:

“The Libra Association estimates 1.7 billion adults, 1.0 billion of which have a mobile phone and 500 million internet access, are underserved by banks. The association believes this unbanked population can be served by its cryptocurrency enabling near costless transactions and remittances of amounts less than $1 and even approaching just a few cents.”

Facebook Must Tread Carefully

The idea of improving financial inclusion prompted some encouraging remarks from Bank of England Governor Mark Carney. It is clear that Facebook is applying its vast resources to toe the line with regulators. Naturally, given the current political environment, Facebook CEO Mark Zuckerberg is cautious not to appear as the “rogue agent” some have labeled him.

Focus on Libra Has Undoubtedly Helped Bitcoin Price

Despite Fitch’s praise of Facebook’s Libra, and the subtle diss of fully decentralized coins, there is no doubt that all this interest in digital currencies has helped the bitcoin price to skyrocket.

If all the FANG companies eventually launch a cryptocurrency , it’s unclear how bitcoin, with features such as limited supply and being decentralized, will fare. Focusing purely on Libra, it seems possible the reaction could be extremely positive.