Currently, Facebook, a company that pays highly for Washington lobbying, is trying to swap the Biden administration. On what? That their upcoming blockchain-based payments project doesn’t put the financial system at risk. Even so, officials are still concerned. Facebook’s efforts to convince officials are running into the same old concerns regulators. This is even though Facebook has overhauled and rebranded their project.
The project aims to develop a worldwide network for super-fast payments. The global tech conglomerate is facing criticism from officials in the treasury department. They feel that the plan for the system could negatively impact the condition of the financial system. This is according to two people who briefed on the deliberations. They spoke up on the condition to remain anonymous and reflect a private conversation.
Biden administration officials are worried that the suggested new network could grow bigger than expected. Then, it would threaten the wider economy in the event of a crash. The network, known as Diem, is an independent association backed by Facebook. The two sources that while Diem is formally independent, its association with Facebook could have a dangerous effect. This is because Facebook can scale its products to appeal to billions of people everywhere.
The regulators are also concerned about an upcoming slew of projects, referred to as stablecoins. These tokens rely on the essential blockchain technology, but the value is pegged to a fiat currency. In most cases, it’s the US dollar. Diem and other such stablecoins aim to develop a system for instant financial transactions. They will do so by developing a coin or token. Users can digitally trade the token just about anywhere in the world.
So stablecoins aren’t the same thing as Bitcoin, the value of which isn’t tied to an external entity. Stablecoins have their values pegged to the major currencies that are currently being circulated. Because of this, proponents think that they’re more stable.
In this case, Diem’s value would be pegged to the US Dollar. They did so in hopes that it would make regulators less worried. After all, this is the fiat currency used to determine the value of investment portfolios.
On paper, it looks great. The theory is that pegging Diem to the USD will protect it from the crazy volatility that surrounds many cryptocurrencies. Critics say that digital currencies are prone to crashing whenever investors simply arbitrarily decide that it doesn’t hold value anymore. When Facebook launched the plan in 2019, it was called Libra and it wasn’t tied to a currency either.
To understand the argument, treasury officials are evaluating the immense growth of stablecoin projects like Tether. Experts warn that these could result in an alternative to the common banking system. This could be dangerous as it would be beyond the scope of US regulators.
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