Facebook-Backed Digital Currency Project Revamps to Address U.S. Regulators' Concerns
By Andrew Ackerman
WASHINGTON -- A Facebook Inc.-backed digital currency project is
being revamped in a bid to address concerns among U.S. officials
that it could be used for money laundering and other illicit
The project, initially known as Libra and renamed Diem last
year, is moving to the U.S. after abandoning a bid to secure the
imprimatur of regulators in Switzerland, its backers said
The Diem Association also announced a partnership with
Silvergate Capital Corp., a La Jolla, Calif.-based bank. The
lender, which has for several years served crypto firms as a core
part of its business, will issue the dollar-denominated
stablecoins, Diem said. Stablecoin prices are often pegged at a
one-to-one ratio to a stable asset, such as the U.S. dollar, to
avoid the volatility of other cryptocurrencies.
Among the other changes, the association said its subsidiary,
Diem Networks, would run all operations for the planned payment
network as well as the digital stablecoin. It added that Diem
Networks plans to register with the Treasury Department's Financial
Crimes Enforcement Network, its anti-money-laundering unit.
Diem adds its blockchain-based payment network will be faster
and cheaper than existing payment and transfer systems, while
protecting consumers and providing safeguards against financial
The moves represent the latest effort to address regulatory
concerns about the potential misuse of cryptocurrencies. Diem's
chief executive, Stuart Levey, who came aboard last year, is a
former U.S. Treasury undersecretary and spent eight years as top
attorney at HSBC Holdings PLC. He played a central role in
designing the George W. Bush administration's sanctions on Iran as
Treasury's first undersecretary for terrorism and financial
As first conceived by Facebook and partners two years ago, the
cryptocurrency would allow holders of digital wallets to send and
receive tokens backed by a basket of currencies. Facebook would
create its own wallet, which could be used for peer-to-peer
payments and shopping on its platforms, though the platform would
be open to other wallets as well.
The first version of the proposal met a cool reception from
regulators around the world. Major payments industry partners,
including Visa Inc. and MasterCard Inc., dropped out. Big banks
approached by Facebook declined to sign on.
Lawmakers, already uncomfortable with how Facebook handled
privacy around users' photos and posts, drew a line on allowing it
to handle users' money. The Treasury Department said at the time it
was concerned that Libra could be misused by money launderers and
Switzerland's former president declared in late 2019 that plans
to back Libra with a basket of currencies were unacceptable, and
that the project, "in this form, has thus failed."
Libra's launch was pushed back and its structure redesigned to
be more like a traditional payments platform. Though the
association has planned to seek approval from Swiss regulators,
Diem said Wednesday it was dropping those efforts.
A Facebook subsidiary, Novi, is among 26 members of Diem
Association, which also includes ride-hailing firm Uber
Technologies Inc. and e-commerce company Shopify Inc. No single
member has a controlling interest.
It wasn't immediately clear when the project's initial pilot for
the payment network would launch. Officials familiar with the
project said they were in close consultation with U.S. regulators,
but weren't awaiting any licensing or other approvals.
Write to Andrew Ackerman at email@example.com
(END) Dow Jones Newswires
May 12, 2021 17:33 ET (21:33 GMT)
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