Last Tuesday, Andrew Bailey, the Bank of England’s governor, warned the British public that cryptocurrencies like Bitcoin are “not money.” They are not to be trusted, nor are they the future of finance, he argued.
Going forward, stablecoins, according to Bailey, are the only logical step. For the uninitiated, stablecoins, unlike Bitcoin and Ethereum, are a type of cryptocurrency pegged to fiat (USD, EUR, GBP, etc.). This pegging, at least in theory, protects stablecoins from the volatile swings associated with the broader crypto market. Unlike Bitcoin, which has “no backing and thus no anchor to provide stability of value,” Bailey believes that “stablecoins have the potential to be systemic in terms of their importance for the financial system and its stability.” If Bitcoin is little more than a fantasy projection, are stablecoins the real deal?
More and more governments certainly appear to think so. All around the world, from Buenos Aires to Budapest, central banks are actively researching the viability of stablecoins. Huge companies are also exploring these digital representations of traditional currencies. The biggest of these companies happens to be Facebook, Inc. In 2019, Mark Zuckerberg announced the launch of Libra, arguably the most controversial digital currency project in history. Not long after the Facebook CEO announced his plans, Rep. Maxine Waters (D-CA), the Chair of the House Committee on Financial Services, promptly requested Facebook to discontinue the launch, citing “the company’s troubled past.” A beleaguered Zuckerberg had little option but to meekly comply. Can this poor guy ever catch a break?
Yes, plenty of them. Less than two years later, Zuckerberg’s crypto project is back. Remodeled and rebranded, Libra 2.0 comes in the form of Diem. What can we expect from this new project? Will Diem seize the day, the market, and the entire crypto movement? That’s the plan. Will it work? Don’t bet against it.
Diem’s plans for Global Dominance
When you think of Facebook, what words come to mind? Plenty, I’m sure, and few if any of them are complimentary. Facebook has a bad name, and for good reason. The company has a horrid history of abusing data and spying on users. So, it’s little wonder that the Diem whitepaper goes to great lengths to distance itself from one of the most controversial companies in existence. In fact, Facebook is mentioned only once throughout the paper.
Nevertheless, Facebook Inc. will play a key role in the distribution of the digital currency. After all, Diem will be distributed via Novi, a digital wallet owned by Facebook. Sending and receiving money will be as easy as sending or receiving a message. Novi will allow people to send cash directly through its app, through Messenger, and also via WhatsApp, which is also owned by Facebook. Considering Messenger has 1.3 billion users worldwide, and WhatsApp has 2.5 billion, Diem may very well end up becoming the currency of choice for a sizable portion of the world’s population. Starting later this year, Silvergate Bank, one of the biggest financial institutions involved in fintech and cryptocurrency, will issue the digital currency and manage the Diem USD reserve. The digital currency will be tied to the U.S. dollar, meaning regulatory issues won’t be a problem.
Diem has the potential to provide a basic service to the 1.7 billion people worldwide who currently lack access to a bank account. To send and receive Diem, all one will need is decent internet access. Borderless, low-fee payments will be possible, with costly cross-border remittances becoming a thing of the past. The likes of Western Union will be phased out. A new financial narrative is being set, and Facebook is one of its leading authors. This was always the plan. In fact, the social media giant has been planning this day for well over a decade.
Who controls the money controls the world
In Dhivehi, the national language of the Maldives, Novi means “Gift of God.” It’s no secret that Big Tech companies, Facebook notwithstanding, enjoy playing God. In August of 2013, internet.org, a partnership between Facebook and six phone companies, including Samsung and Nokia, was launched. The project, according to TechCrunch, was designed to offer affordable internet access to billions of people who lacked it. The companies began working together on the development of data compression technologies, the creation of cheaper, high-quality smartphones, and more affordable access to the internet. In 2015, internet.org was renamed Free Basics; six years later, it’s available in at least 65 different countries. Users can access a number of pre-selected apps for a small fee. Once Diem is rolled out, Free Basics members, one assumes, will have instant access to the digital currency. The foundation has already been set, and Facebook is ready to capitalize on the most lucrative of opportunities.
Take Sub-Saharan Africa, for example. Facebook has aggressively targeted this part of the world for close to a decade. With more than 350 million unbanked adults, it’s easy to see why. Of the 65 countries where the Free Basics initiative has been rolled out, almost half of these countries are in Africa, which is the fastest growing continent in the world. To control the proverbial purse strings of countries and continents is well within the company’s reach.
However, where there’s opportunity, there’s competition. Diem has a rival, a powerful one, and it comes in the form of the Chinese Communist Party (CCP). The e-RMB, China’s new digital currency, which can be sent as easily as a message, will allow the communist nation to project growing levels of soft power around the world. As China rolls out its digital currency, President Xi Jinping is busy forging alliances with dozens of different countries. From Kazakhstan to Kenya, the CCP has become an influential presence. In Africa, for example, through its Belt and Road Initiative, the CCP has invested in 52 of the continent’s 54 countries. As CoinDesk’s Michael Kimani has previously noted, China “is the leading contender” in the race “to define a digital currency standard for the emerging digital economy.” Why? Because of a “sneaky 20-year head start.”
Over the last two decades, according to Kimani, “China has discreetly accumulated significant influence over Africa’s technology stack, close to 50% in the mobile handset and 70% in the mobile network layers.” With a significant presence across the entire continent, the CCP can easily launch its digital currency, which can run on “specially designed chips embedded deep within dozens of popular Chinese phone brands that dominate Africa.”
China’s economy is set to overtake the U.S. by 2028, and the e-RMB will play a major role in the country’s rise to dominance. James A. Garfield once said, “he who controls the money supply of a nation controls the nation.” How about the money supply of continents, or even the world?
The battle between Diem and Beijing will be a fascinating one. Who will win? Only time will tell. Some will argue that it’s not just a two-horse race. El Salvador has just accepted Bitcoin as legal tender, for example. Yes, but El Salvador hardly speaks for the world. It’s an interesting experiment, but it looks to be more of a marketing ploy than a macroeconomically consequential moment for the world. Furthermore, there are major issues surrounding the broader crypto movement, including volatility and scalability. Regulatory issues are, perhaps, the biggest concern of all.
With Diem and China’s e-RMB, all three of these sizable obstacles are removed from the equation. The foundations for both currencies are already in place, and the race for global dominance is very much on.
John Mac Ghlionn is a researcher and essayist. His work has been published by the likes of bitcoin magazine, New York Post, South China Morning Post, and the Sydney Morning Herald.