Here's How FIN Predicted Facebook's Failure Back in 2020

For those paying attention, the idea that Facebook would create and circulate a currency has been a nonstarter for a long time. This week, the news has confirmed that the project is bust.

FIN readers knew the writing was on the wall; here’s what we published in December 2020:

Facebook’s Currency Dream Shrivels On

Pretend, for a moment or two, that you are Facebook. You are under constant bombardment for peddling fake news, harassment, and hatred. Pressured by advertisers, you have agreed to a “brand safety audit” to assure advertisers that their money isn’t going into a cesspool, although you continue to fight to keep the auditors’ noses out of your news feed. The US Justice Department is suing you, alleging that you discriminate against American workers by favoring H1-B visa holders and other temporary workers. The incoming president has labeled your founder “a real problem” and suggested immediate revocation of Section 230 of the Communications Decency Act—an action that would make it impossible for your business to operate at anything like its current scale.

And your response is “Let’s definitely push forward with the plan for a global digital currency! Sort of!”

In June 2019, when Facebook originally announced its intention to launch a global, blockchain-based digital currency called Libra, legislators, regulators and central banks across the planet panned the idea. US Treasury Secretary Steven Mnuchin went so far as to label Libra “a national security issue.” Many of the partners—including payment giants VISA and PayPal—in the Switzerland-based consortium designed to oversee the currency (it was called the Libra Association, which sounds like a ‘70s supergroup) pulled out. A year ago, it seemed likely that Libra would just quietly crawl away to die.

Yet in April, Facebook announced a stripped-down version of Libra, in a clear attempt to mollify regulators. The key change was to move away from a single currency backed by a basket of multiple currencies, and instead issue digital versions of several currencies. Then in late November, the Financial Times reported that Libra would be issued only as a one-to-one coin backed by the US dollar, and could become available as soon as next month; according to Bloomberg, the new currency will be called the Diem Dollar.

This leaves Libra/Diem as a dollar-pegged “stablecoin,” a word that was never used in the original Libra white paper. Facebook’s retreat is tactical—Diem can be…kind of whatever the regulators want it to be! (Although see the next item.) At the same time, it further limits Diem’s value proposition against competitors. In a 2019 paper analyzing the original Libra proposal, Morgan Stanley wrote: “What legitimate corporate or consumer global payments need exists that a FB-led crypto consortium can uniquely fill? In our view, none.”

Part of the problem is that Facebook has never given plausible or transparent reasons for why it wants to create an independent global currency. (Neither Facebook nor Diem gave substantive replies to FIN’s requests for comment.) Facebook has constantly emphasized that, through the Calibra (now called Novi) wallet and through the Association, it would not have excess influence on the currency. Charging fees on day-to-day Diem transactions would not likely yield much revenue, given how many free options many customers already have. Some have suggested that, since Diem would make Facebook ads easier and quicker to pay for, Facebook could raise its ad rates, but good luck getting the company to admit that.

Instead, Facebook has presented its currency efforts as a grand gesture to save the world’s most vulnerable; the original Libra white paper repeatedly insisted that the currency “empowers billions of people.” Last month, Facebook Chief Operating Officer Sheryl Sandberg said in a Harvard speech:

I've worked in the most rural parts of the world, and that means you are a woman who's working, maybe earning a little bit of money, hiding it under your mattress, because you have no access to any banking. And, you know, your husband or partner is probably taking it from you at night. That is the fact of life for a lot of people. And so, access to digital currency to remittances for people who are working is super important and something we really believe in.

It’s hard to know even where to begin here. Certainly poor people need more stable control over their money, but it’s far from clear that digital currency is the only or most accessible solution to this problem; even if so, it’s still less clear that Facebook’s not-yet-available currency is the best option.

Indeed, in many parts of the world to which Sandberg alludes, Facebook is arguably part of the problem. In a place like The Philippines, Facebook penetration is so high (around 90%) that it essentially functions as the Internet for a majority of the population. And Facebook in turn has become an arm of the state, with often frightening results.

Imagine, then, a global company with local monopoly power that already has access to a frightening amount of personal data about its users—then layer on top of that access to how millions of users spend their money. Are Facebook users going to accept this unprecedented data takeover? Will they even understand the stakes before the Diem system is already in place?

Still, Sandberg’s use of the term “remittances” may provide a clue to Facebook’s motivation. Facebook knows there’s little point in competing with Apple Pay or Venmo in transactions that take place in the same currency. But remittances—transfers between countries and currencies—are a vast market; global remittances in 2018 were $689 billion, according to the World Bank. And perhaps just as important: the remittance market is dominated by many old-school players: Western Union, MoneyGram, Bank of America. If there’s a place where a digital currency easily adapted by Facebook’s billions of global users could make a quick and large impact, it’s remittances. Of course, shrinking the Libra vision down to the Diem Dollar complicates that effort, but presumably Facebook and the Diem Association have to start somewhere.