The flight of Diem illustrates that the U.S., and not Switzerland, is the ultimate crypto nation, finews.com's Katharina Bart writes.
The Facebook-backed currency project abandoned a nearly two-year foray into Switzerland last week. Instead, it will partner with a small California-based lender already active in digital assets as it advances an U.S. dollar-backed stablecoin.
The move puts an end to a bumbling odyssey orchestrated by Mark Zuckerberg between Geneva, Menlo Park, and Bern. After initially dithering indecisively, the U.S. has decided to play – and win – a game of brinkmanship with places like «crypto nation» Switzerland.
Raising Hackles
Libra’s birth in 2019 was emblematic of Zuckerberg’s now-famous «move fast and break things» motto: the tech giant plopped itself down in Geneva as an association, an opaque legal form typically used to envelope community projects or special interest groups.
It was politically fraught from the start, raising the hackles of central bankers including Fed boss Jerome Powell and Bank of England then-head Mark Carney. The cryptocurrency «would instantly become systemic» and will have to be subject to the highest standards of regulation, Carney said.
International Plaudits
Bern was puzzled but openly welcoming: after all, Switzerland had debated digital currencies in parliament as early as 2015 (in German). Early in 2018, regulator Finma had won international plaudits for landmark guidance on tokens.
As the Swiss overseer got to work, it became far clearer just how politically fraught Facebook’s plan was. Finma staff working on Libra, as it was known at the time, regularly fielded angry calls from U.S. lawmakers, sources told finews.com.
Six months into the project, Switzerland abruptly put the kibosh on it. Libra went back to the drawing board, abandoning grand currency plans in favor of a Swiss-based payments system, before last week heading back to the U.S.
U.S.' Crypto Agenda
While Finma – an agency of roughly 500 – pored over Libra with 24 other regulators, the U.S. was quietly advancing its own crypto agenda. In January, a key U.S. banking and currency regulator paved the way for banks to use of live-test digital assets like stablecoins far more widely.
The move comes amidst a flurry of movement in the U.S. crypto scene including hot growth of crypto firms like Mike Novogratz’ Galaxy Digital, Coinbase’s stock listing (April 2020), or Paypal moving into crypto (May 2021). The developments underscore just how dramatically U.S. had softened its stance on cryptocurrencies in the last 24 months.
Fragmented Oversight
To be sure, the U.S.’ regulatory approach through various agencies like the SEC, CFTC, and Treasury remains unclear, especially compared to Switzerland’s distributed ledger law enacted in February. For now, the U.S. seems to be signaling enough clarity for major projects like Diem to return.
Why the shift? The U.S. feared missing out, especially after other nations embraced stablecoins. Notably, China backed down from initial hostility on crypto and stablecoins last month. The bottom line is U.S. officials would rather have a digital currency backed by one of its most powerful tech firms in its own backyard, and not in Switzerland.
Ultimately, Libra/Diem’s ham-fisted detour via Switzerland was just that: an expensive, time-consuming way to bed down its plan of action. It remains to be seen whether Facebook has frittered away the lead to other U.S. projects like Circle – a Boston-based stablecoin start-up with $16 billion in circulation already.
