Once upon a time one big private company came up with an idea of reinventing money and changing the financial world. It failed. Prof. Dahlia Malkhi, who was working on Facebook's unified digital currency Diem (previously Libra), explained why in an interview with Calcalist.
For her, it all started back in 2018, when David Marcus, head of Facebook's crypto project at that time, invited her to work with them on a new payment network, which was going to reach two billion potential customers. Facebook planned to build a low-fee universal currency for the internet, which would include the unbanked population into the financial world. Malkhi points out that she had some concerns regarding the company and its dubious reputation for user privacy, but project Diem was to be isolated from Facebook. However, nobody else separated the crypto project and the tech giant, which would later become a big stumbling block for the digital currency.
Libra, the first iteration of the Facebook currency, was meant to be used in peer-to-peer transfers, goods and service payments. It was going to be backed by a basket of central bank-issued money, including dollar, euro and Japanese yen. Of course, central bankers and politicians didn't hesitate to complain about a broad range of issues, from money laundering to financial stability and unacceptable Facebook monopoly. The Federal Reserve warned that "any financial institution planning to be involved in the project should expect stricter scrutiny of its payment activities,” after which major backers abandoned the venture.
Then in 2020 there was a rebranding and Libra became Diem, which was to be more palatable and clearer to regulators. They planned not to mix all currencies in one basket, but to peg it to the U.S. dollar. Moreover, this rebranding was supposed to demonstrate greater independence of the project from Facebook. They tried to launch the project as a Swiss payment system, but American regulators stepped in, pointing out that it was expected to operate in U.S. dollars. Their responses, however, were always late and reluctant, the regulators resisted cooperating. Eventually, on July 2, 2021, during a phone call, the U.S. Treasury Department strongly advised not to launch the project. Diem was sold, and the team moved on to another crypto project.
And they lived happily ever after.
Was it all in vain? There were reasons to say no. At least, this Facebook crypto project pushed governments to develop their own CBDC's. Besides, according to Prof. Malkhi, this platform should appear in the near future, and only the private sector is capable of introducing such an innovation.
Who will be the first?