Facebook wanted to make a financial revolution in the global digital currency – then came the regulators.
First proposed in June 2019 under the name Libra, the token was initially supposed to be a universal currency tied to a basket of sovereign currencies such as the U.S. dollar and the euro.
But after facing strong opposition from regulators around the world, the organization that oversaw the project lost large supporters, including Visa and Mastercard. The group eventually diluted its plans, opting for multiple “stable coins” that support one-on-one different currencies backed by the state, as well as one coin in multiple currencies.
Now known as a diem, the digital coin with Facebook support should be launched later this year, albeit in a much more limited form. When it finally arrives, Diem won’t come up with the same fashions and controversies of the original idea envisioned by the social media giant nearly two years ago.
Diem, a Swiss-based non-profit organization that oversees the development of per diems, aims to launch a pilot with one stable bitcoin pegged to the U.S. dollar in 2021, according to a person familiar with the issue.
The person, who preferred to remain anonymous because details have not yet been released, said the pilot would be small-scale, focusing mainly on transactions between individual consumers. There may also be an option for users to buy goods and shopping, the person added. However, there is no confirmed launch date, so the timing could change.
“It really veered off the radar in a pretty striking way,” Michael Casey, general director of content for the cryptocurrency publication CoinDesk and a former financial journalist, told CNBC.
Diem came under intense scrutiny when it was first introduced. Given Facebook’s wide reach – it had 2.8 billion active users per month in the fourth quarter of 2020 – central bankers and politicians feared the currency could jeopardize monetary stability and potentially enable money laundering. The inclusion of Facebook has also meant that there are concerns about how it will protect users ’privacy.
“It was such a stunning challenge for the international order because the reaction was really powerful,” Casey said.
According to Casey, one big concern was that the per diem posed a threat to the dominance of the U.S. dollar. Two months after Facebook unveiled the library, former Bank of England Governor Mark Carney proposed a new digital currency based on a global basket of goods that could diminish the status of the dollar as the world’s reserve currency.
Diem’s technology has “changed dramatically in the last year and a half from a naive blockchain to a very sophisticated blockchain that you see trying to answer some questions that regulators had,” said Ran Goldi, CEO of Digital Assets Group, which is building the infrastructure to merchants accepted per diems as a method of payment.
“I think this year will pass the door,” said Michael Gronager, CEO of blockchain analysis company Chainalysis. “It would be a missed opportunity not to.”
“At the same time,” Gronager added, “it’s one of the multiple initiatives going on and it’s similar to Tesla buying crypto $ 1.5 billion.This is just part of a big movement, not a new movement.
Indeed, the diary – or scales – may have been a big crypto story in 2019. But bitcoin and cryptocurrencies have gained significant momentum over the past year, and bitcoin has recently risen sharply to a new high above $ 60,000, and big companies like Tesla and Square have big digital coin bets. Meanwhile, the crypto exchange Coinbase was published in a direct list on the Nasdaq.
What’s next for per diems?
Diem has lost many members and executives for almost two years since its first discovery.
Visa, Mastercard and Stripe were some of the earliest companies to retire from the association. This was followed by the exodus of other members, including PayPal, eBay and Vodafone. Meanwhile, the project has also undergone a number of significant departures, from Kevin Weil, head of Facebook’s planned digital wallet Novi, to Dante Disparte, Diem’s head of public affairs.
At the same time, Diem underwent a complete makeover, rebranding from Libra earlier this year and strengthening his leadership team with such large employees as CEO Stuart Levey, who was previously HSBC’s chief legal officer.
Diem is now in talks with Swiss financial regulators to secure a payment license, a crucial step that would take the organization further on the road to launching a digital currency project.
“A big step in our dialogue with regulators was a gradual approach to the launch,” Christian Catalini, Diema’s chief economist, told CNBC’s Joumanni Bercetche last month.
“We will gradually introduce different functionalities and use cases, applications in different areas,” he said, adding that members – both large and small – will have to pass rigorous anti-money laundering checks.
“Once we get the green light, we’ll start experimenting with a small number of users and a small number of players,” Catalini said. The goal would be to ensure that the technology and backup system work as expected, he added.
Although it starts with a limited pilot, the group plans to eventually bring in traders and other partners. For now, narrow lips remain.
“What you get from an institution like Facebook that supports stabilnicoin is much better distribution,” Gronager said. “You can put it in apps, add it to a lot of other places and I think it’s going to be strong.”
“We’ll see when it starts how it’s going to play out, but already today, the great interest in crypto is also speculative,” he added. “It will basically allow more people to easily enter the crypto.”
But this also brings with it concerns about user data, a problem that has clouded the project due to Facebook’s history of privacy scandals. For his part, Diem says he takes privacy “very seriously”.
“Diem herself will not have private information about customers,” Catalini said. “Some of our members have made commitments regarding the separation of data between social and financial data.”
Yet one thing diem has achieved is the global race between central banks in devising their own digital money strategy. The National Bank of China is leading the way, testing the digital version of the yuan in a number of cities, while the British central bank is investigating whether to issue its own digital currency or not. And some experts say we shouldn’t count per diems yet.
“The story of digital money in the 2020s will be the growth of tokenized money,” a team of Citi analysts led by Ronit Ghose, global head of banking research, wrote in a research note last week.
“Central banks … and Big Tech … along with the wider adoption of cryptocurrencies, are building new payment formats and rails,” Citi analysts wrote. “Stablecoins like Diem could benefit from the huge networking effects of their Big Tech sponsors.”