Backtesting Libra's reserve basket for stability

With news breaking last week that the Facebook-led Libra stablecoin would be backed fully by five fiat-currencies (50% U.S. dollar, 18% euro, 14% Japanese yen, 11% British pound, and 7% Singapore dollar), we wanted to backtest the past two years worth of data to measure how stable the hypothetical index was relative to the individual currency components.

Using the U.S. dollar to each respective exchange rate, and the U.S. dollar index as a representation of the dollar (according to Investopedia the U.S. dollar index is a measure of the U.S. dollar relative to a basket of 6 other major currencies), we found that since September 2017 the proposed weightings of the Libra reserve would generate a smaller 30-day annualized rolling volatility than the Pound, Yen, Euro, and U.S. dollar Index. Only the Singapore dollar would have a smaller 30-day rolling volatility than the Libra reserve over the the past two years.