American authorities in a tight spot

We must again turn our attention to Facebook’s cryptocurrency ambitions and the actions of American regulators – there has recently been a surprising turn in the events of the case.

Facebook has announced the launch of its own crypto wallet, Novi. It is a colossal payment network that uses the Pax Dollar (USDP) stablecoin as a means of payment. Novi as a Facebook crypto wallet will allow people to send and receive money instantly, safely, and commission-free anywhere in the world.

Facebook has selected the US crypto exchange Coinbase as its custodian partner for Novi data storage. Coinbase supports Novi through Coinbase Custody, which keeps users’ funds safe with a fully segregated cold storage function for managing private keys.

The Novi digital wallet is now entering deployment stage in the USA and Guatemala, as announced by the head of Facebook’s blockchain department David Markus. The purpose of the pilot project is to test the wallet’s key functions in real conditions.

“Cash transfers are an important way to achieve financial accessibility. Today, we are launching a pilot version of the Novi digital wallet application in two countries – the USA and Guatemala. Now people can send and receive money instantly, safely, and commission-free, – Marcus tweeted. – We hope to demonstrate a new way of using stablecoins (as a means of payment), that goes beyond all existing ones “.

Previously, Facebook’s own stablecoin (first called Libra, then Diem) had failed to ever see the light of day following an extremely harsh reaction to the initiative by the American authorities. As a result, the network decided to use Paxos’ Pax Dollar stablecoin as its internal currency.

The launch of a payment solution by Mark Zuckerberg’s company caused an immediate explosive reaction from five American senators. They wrote an open letter to Zuckerberg on behalf of the US Senate demanding that work on the project be stopped. It was put together by Senators Brian Schatz, Sherrod Brown, Richard Blumenthal, Elizabeth Warren, and Tina Smith. And they did not mince their words. Here are some choice quotes from the letter:

– We urge you to immediately stop pilot testing Novi and pledge never to bring Diem to the market.

– Given the scale of the controversies surrounding your company, we are writing to you to express our outrage at Facebook’s efforts to launch a cryptocurrency and a digital wallet, now called Diem and Novi, respectively.

– Facebook has repeatedly made informed business decisions to continue actions that have harmed its users and society at large.

 – Facebook cannot be trusted to manage a payment system or a digital currency in light of its completely inadequate present ability to manage risks and ensure users’ safety.

Having never been a fan of Zuckerberg’s, even I am outraged by the reaction of American legislators. I still remember the summer of 2019, when after the publication of technical documentation for Libra (later renamed Diem), regulators worldwide all turned against the “global stablecoin” project. They especially hated Facebook’s involvement in the development of a new cryptocurrency. Back then, Mark Zuckerberg even had to appear before the US Congress, announcing Facebook’s willingness to leave the Diem Association in case the project is launched before all regulatory issues are resolved.

Nevertheless, as we can see, the senators could not completely destroy the initiative.

Another piece of news came in quickly after that: The Chinese authorities demanded McDonald’s to add support for the digital yuan before the 2022 Winter Olympics in Beijing. Emphasis on “demanded” – China insists that McDonald’s began to accept the local central bank digital currency in all its locations within the country.

This fast-food chain has already carried out a digital yuan test in Shanghai, but now the Chinese government wants it implemented across the country.

According to some data, other large companies, including Nike and Visa, are also experiencing state pressure. The addition of these brands to the digital yuan structure will help China boost the adoption of digital currency ahead of Beijing Winter Olympics.

Analysts predict that the digital yuan could account for 9% of China’s domestic wages by 2025. Many of them, us included, link the ban on bitcoin mining with the purposeful elimination of competition for the country’s CBDC.

As it stands, the American authorities find themselves in a strange position and clearly don’t know what to do. On the one hand, there is Mark Zuckerberg, with his ubiquitous Facebook and the ability to create the world’s largest financial network, now also planning to transform the platform from a social media into a “metaverse”. At one point, the American authorities were so scared of his cryptocurrency plans that they almost kicked him out of the country.

On the other hand, China is increasingly imposing its digital yuan on the market (for now – domestic, but with an eye on the international). It thereby becomes a pioneer that can hit the biggest jackpot from the implementation of CBDC. America, with its digital dollar, is lagging far behind.

That being said, Facebook is still an American company (although it operates on a global scale). In the past, Motorola, Intel, Apple, IBM, and other private companies provided the United States with global technological leadership. Now the American establishment must decide whether Facebook could help the countries’ global financial leadership. The price to pay for this is the loss of the dollar monopoly by the US Federal Reserve. Refusing would open the path to Chinese dominance.

Not an easy choice, to put it mildly. Almost as difficult as the one faced once by the Founding Fathers of the United States.