Diem struggling to win over US policymakers for new global payments system

Diem, the digital currency and global payment system project of Facebook, seemingly can’t cope with its struggle with financial regulators. The payment project has been facing difficulties with senior legislators in the Biden administration. Despite the whole might of the lobbying power of the social media giant, the project of Facebook stablecoin hasn’t been able to hit the ground running.

It seems Facebook’s push to launch a payment system and its own stablecoin might suffer from the brewing anti-crypto sentiment among key Washington policymakers. According to The Washington Post report on Friday, Diem is facing difficulties smoothening regulatory wrinkles with senior legislators under the Biden administration.

Reports say about David Marcus, the head of Facebook Financial, who met with several financial regulators back in September. According to anonymous sources reportedly present at the meeting, Marcus argued for the importance of crypto in broadening access to financial products while highlighting the benefits of Diem’s payment app Novi.

“Diem has addressed every legitimate concern that was raised on its journey to design and build a high-quality stablecoin with extensive consumer protections, and a highly compliant payments network to support it — all within the US regulatory perimeter,” Marcus wrote. He said that Facebook’s Novi project was “ready to come to market” after a long journey.

Facebook representatives cited by The Washington Post say regulators are pleased with some of the design changes made by the project. In fact, the currency project has gone through quite a lot of changes since its initiation back in 2019.

Initially titled Libra, Diem was the endeavor of Facebook to create a global payment system that brought forth a “Facebook Coin” backed by a bunch of fiat currencies. In the paradigm of Diem, the project is looking to launch individual fiat-pegged digital currencies, beginning with a US dollar-pegged stablecoin. Diem has also sought to appease regulatory fears concerning money laundering.

Nevertheless, recent news from Washington says key policymakers, including Treasury Secretary Janet Yellen and several members of Congress, are against privately issued stablecoins. While Senator Elizabeth Warren recently called crypto the “new shadow bank,” expressing concerns over stablecoins.

“I’m not sure how Facebook and the Diem Association could have addressed ‘every legitimate concern’ whenever there’s overarching regulatory uncertainty that permeates many facets of the crypto space,” Rep. Warren Davidson (Ohio), the top Republican on the House Financial Services Committee’s financial technology task force, said in a statement referring to the Facebook blog post.

His concerns are echoed on the side of Democrats.

“Facebook may have rebranded their project with a new name, but they have done nothing to address the major privacy, national security, consumer protection, and monetary policy concerns about the project that I and other Members of the Financial Services Committee have raised,” said Rep. Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee, which hauled in Facebook chief executive Mark Zuckerberg and Marcus to testify on Libra in 2019, and has been one of the project’s most vocal and powerful detractors on Capitol Hill.

For Diem and other private stablecoin projects, the growing concern over crypto within the context of money market funds outside of the legacy banking system framework might constitute significant regulatory problems.

Meanwhile, legacy finance stakeholders continue to push for accelerated central bank digital currency (CBDC) development.