iCurrency?

TL;DR

This paper explores the concept of a universal algorithmic currency, analyzing Libra as a potential candidate, and discusses the economic and technical challenges involved in establishing such a currency.

Contribution

It provides a comprehensive analysis of Libra's potential as an iCurrency, including stability, volatility, and monetary policy issues, with a detailed mathematical framework.

Findings

Libra's stability depends on robust monetary policy.

Cryptocurrency exchange rates can be modeled with target zone dynamics.

Maintaining narrow trading bands requires mechanisms to control volatility.

Abstract

We discuss the idea of a purely algorithmic universal world iCurrency set forth in [Kakushadze and Liew, 2014] (https://ssrn.com/abstract=2542541) and expanded in [Kakushadze and Liew, 2017] (https://ssrn.com/abstract=3059330) in light of recent developments, including Libra. Is Libra a contender to become iCurrency? Among other things, we analyze the Libra proposal, including the stability and volatility aspects, and discuss various issues that must be addressed. For instance, one cannot expect a cryptocurrency such as Libra to trade in a narrow band without a robust monetary policy. The presentation in the main text of the paper is intentionally nontechnical. It is followed by an extensive appendix with a mathematical description of the dynamics of (crypto)currency exchange rates in target zones, mechanisms for keeping the exchange rate from breaching the band, the role of volatility, etc.