Mark Zuckerberg may have a lot of money, but he’s not going to create his own. The billionaire and his Facebook company — now known as Meta — this week buried Project Diem, formerly known as Libra. All the name changes can’t hide one thing: there will be no Zuckerberg money.
First of all, it is good that the attempt to establish private digital money in competition with state currencies has been dampened. The risk was too great that a corporation that already dominated large parts of social media, online advertising and research into artificial intelligence and collected data on billions of people would also create a parallel money system for its own interests. But central banks also need to learn their lessons from the case.
Diem – what was that again? Since 2019, Facebook has been working with other companies on digital money, a “stablecoin”. This can be moved from cell phone to cell phone like cash from hand to hand – just worldwide and with a click. Stablecoins are meant to be stable, backed by real dollars or euros. This distinguishes them from wildly fluctuating cryptocurrencies such as Bitcoin, which have to be laboriously generated on users’ computers and with which investors speculate. Now the most ambitious stablecoin project has failed. A clear “Not like that!” the supervisor persuaded Facebook’s consortium to sell Diem to an investor.
In the conflict between the opponents of state institutions, who want to wrest the currency monopoly from governments and central banks, the states have won a victory. Developing countries in particular had to fear that thanks to Facebook’s large network, Diem would relegate their national currencies to second place. After all, some populations don’t really trust their own money. To forestall such private sector infiltrations, central banks are tinkering with digital versions of their currencies, such as the digital euro. The debate about fears of the end of cash and total surveillance of consumption is still pending.
There is an urgent need to think about innovative payment methods
Central banks’ concerns were understandable. In addition to Facebook, the concentrated economic power of Visa, Paypal and American Express was also at play for a long time. Meta could have enabled Diem transfers for billions of Facebook and Whatsapp users – and also disabled them again. The corporations are not committed to the citizens. Facebook urgently needs new business areas. On Wednesday, the quarterly figures showed that the number of users fell for the first time.
But one shouldn’t delude oneself: the fact that Facebook tackled a project of this magnitude at all shows the weaknesses of the current system. First, the European Central Bank (ECB) and the US Fed helped fuel the dream of non-government monetary alternatives. The ECB, for example, exceeded its mandate with support purchases of government bonds in order to stabilize countries like Italy. The central banks make politics, which raises doubts about their independence. Companies and fans of cryptocurrencies find themselves in this trust gap. After all, they dream of digital currencies that are neither influenced by politics nor by powerful corporations.
In addition, the monetary system has nothing to offer many poor people. Zuckerberg’s claim that he only wanted to help the unbanked with Diem was Silicon Valley propaganda at its best. But even if his motive was to position himself in the global payments market, in many countries someone is more likely to have a cell phone than a bank account. Credit card companies form an oligopoly and charge high fees. This applies to an even greater extent to services such as Western Union, which migrants in particular rely on to send money home. For countries like Mexico or the Philippines, these transfers are essential. But people without relatives in poorer countries can hardly imagine how expensive and cumbersome international transfers are.
What is missing is a global digital system that would allow people to seamlessly send money to one another. Therefore, Diem-style stablecoins could well complement government money. Facebook’s failure is likely to deter other corporations from challenging central banks for the time being. Nevertheless, innovative payment methods urgently need to be considered. They just must not be ruled by monopolists. Too many people’s money is at stake.