GENEVA — Facebook’s global digital currency project formerly known as Libra is abandoning Switzerland as its hoped-for regulatory home and planning to launch a U.S.-based payment system renamed Diem, organizers and Swiss regulators separately announced on Wednesday.
The project’s dollar-backed stablecoin, Diem, will be issued in partnership with Silvergate Capital Corp., a California bank. The Geneva-based association behind it, formerly known as the Libra Association set up by California-based Facebook, will likewise make what it called “a strategic shift” to Washington. The new strategy “reflects Diem’s consideration of the evolving digital currency regulatory environment in the U.S.,” the association said.
Diem’s blockchain-based payment system is to be run by its subsidiary, Diem Networks, with the stablecoin pegged to the U.S. dollar. After it was announced as Libra in 2019, U.S. lawmakers raised a raft of concerns over privacy and public trust while grilling Facebook CEO Mark Zuckerberg on his plans.
The project’s organizers applied for a payments license in Switzerland so the proposed cryptocurrency could be regulated by the Swiss Financial Market Supervisory Authority, based in the Swiss capital Bern. That was withdrawn, FINMA said, though the application to authorize a payment system was “already at an advanced stage.” Central bankers and governments had worried the project might undermine currencies, compromise privacy and facilitate money laundering.
“The application was originally based on a stablecoin linked to a basket of currencies,” FINMA said. “Because initially the U.S.A. is an important target market for the project and because it is now only based on a stablecoin linked to the U.S. dollar, the Diem Group is planning to launch the payment system from the U.S.A. in a first phase. Furthermore, for the time being the payment system will focus on U.S. participants.”
— Jonas Gross (@Jonas__Gross) May 12, 2021
Swiss ‘constructive feedback’
The Diem Association’s subsidiary, Diem Networks, now plans to run the digital stablecoin and to register as a money services business with the U.S. Treasury Department’s anti-money laundering unit. The association noted that Silvergate is a California state-chartered bank and is a member of the U.S. Federal Reserve. As such, the association’s CEO Stuart Levey promised the U.S.-based payment system would protect consumers and enhance the integrity of the financial system.
“We are committed to a payment system that is safe for consumers and businesses, makes payments faster and cheaper, and takes advantage of blockchain technology to bring the benefits of the financial system to more people around the world,” he said.
He added that the project also has “benefited greatly from the intensive licensing process in Switzerland and the constructive feedback from FINMA and more than two dozen other regulatory authorities from around the world convened by FINMA to consider the project.”
Silvergate’s CEO Alan Lane said his bank was “inspired by Diem’s technology and commitment to building a regulatory compliant payment system that offers a safe and secure way to move money.”