NEW YORK (Project union) – In June 2019, Facebook made a bold announcement: within a year, it would launch a new global currency, Libra. The idea was to offer an alternative to national currencies in cross-border transactions and to provide a payment network to billions of unbanked people. Strictly digital token, the Libra was to be issued by an association in Switzerland and supported by a basket of national currencies, which implies that its creators sought independence from sovereign powers.

But Facebook FB,
+ 0.04%
soon lowered his sights. Libra has since been renowned Diem, and the issuing entity moved from Switzerland to the United States, where it has formed a partnership with Silvergate Bank to issue a token that complies with US banking regulations. A project that began by taking its name from a Roman coin and enveloping himself in the image of Caesar Augustus ended as part of an online financial services platform based in a corporate office park in La Jolla, California.

The story of Facebook’s failure to launch a global digital currency and payment system is reminiscent of the historic struggle between secular and religious authorities. A clear lesson for other monetary aspirants is that it is risky to attain the jewel of state sovereignty.

Premature challenge to the powers that be

The rapid rise and fall of Libra is a telling case of a premature and ill-conceived attempt to challenge the powers that be. Among other things, his fate highlights the critical importance of building coalitions that are willing and able to play both offense and defense against challengers.

Perianne Boring from the Digital Chamber of Commerce and Neha Narula from the MIT Media Lab explain central bank digital currencies and what their emergence means for crypto and fiat money.

Facebook and the Libra Association did not invent the idea of ​​digital currencies, which had been around for a decade. They have not innovated in payment systems either. Companies such as PayPal PYPL,
+ 1.17%
have been building alternative systems in the shade (and often building on) existing banking infrastructure for more than two decades. This low profile was both a strength and a weakness: it allowed new platforms to develop without angering regulators; but it also left them dependent on existing institutions and easy to copy.

Late in the game, Facebook hoped to use its comparative advantage as a digital platform with more than 2.3 billion users to integrate digital currency. Relying on the fashion of “stable pieces”, Libra had to be attached to a currency basket issued by countries known for their stability and enjoying the reliable support of central banks. Its value would follow a weighted average of the pound GBPUSD,
the US dollar BUXX,
+ 0.26%,
the euro EURUSD,
the Singapore dollar SGDUSD,
+ 0.08%,
and the Japanese yen USDJPY,
+ 0.36%,
even if it would be issued by an entity outside one of the jurisdictions of those countries.

The regulatory backlash has been swift and fierce.

Within weeks, hearings were held in both houses of Congress and politicians around the world voiced their disapproval. The national authorities quickly formed a united front and pledged to examine all aspects of what they saw as a threat to their monetary sovereignty. The Financial Stability Board, which has the G-20 as a member, has launched a review of existing regulatory frameworks and has begun coordinating the response to Libra and other aspirants. global stable coins.

Archives: Facebook’s Libra could be more dangerous than 9/11, congressman says

Nothing unites disparate interests like a common enemy. Libra’s ambition was more than the world’s major economic powers could handle. No matter how hard Facebook CEO Mark Zuckerberg has pleaded for leniency or scared about China’s efforts to develop a global digital payment system, he could not influence the powers that be.

Forced to retreat

Facebook was forced to retreat. First, the Libra Association has started to lose key members. When Visa V,
MA Mastercard,
and PayPal left, the writing was on the wall, although the total membership continued to increase. To alleviate market concerns and political concerns, Facebook had to give up its own engagement with the association.

When Henri’s allies hesitated, he had no choice but to submit on his knees to the Pope.

Then came the unfortunate renaming of Libra (balance) to Diem (day), which was marred by Copyright issue.

When the Diem Association finally announced its relocation from Switzerland to the United States this month, it was hard not to remember the infamous Henry IV. trek in Canossa in 1077. Although Henry was Emperor of the Holy Roman Empire, he was forced to humble himself by crossing the Alps in winter to implore clemency from Pope Gregory VII, whose authority he had openly contested by appointing bishops in contravention of a papal decree.

Henry’s challenge to papal authority was successful as long as he had the German kings behind him. But the Pope responded by excommunicating Henry, denouncing the other kings’ oath of allegiance and pressuring them to withhold their support from Henry unless he agreed to atone. When Henri’s allies hesitated, he had no choice but to submit on his knees to the Pope.

Katharina Pistor, professor of comparative law at Columbia Law School, is the author of “The capital code: how the law creates wealth and inequalities. “

This comment was posted with permission from Project unionHow not to launch a digital currency

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