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."