in june 2019 facebook announced the
blueprint for a brand new digital
currency that would transform the way
money moves around the world
what if everyone was invited to the
global economy with access to the same
financial opportunities
it was called libra and the announcement
sent the financial industry into a spin
central bankers and politicians around
the globe expressed concerns over a
broad range of issues
ranging from money laundering to
financial stability
after months of growing backlash major
backers abandoned the venture and key
figures declared the existing project a
failure
but the association managing libra
wasn't giving up that easily
it released a new white paper in april
2020 to placate regulators
in it the currency was rebranded as dm
the dm proposal is ultimately a
watered-down version of the original
idea
but that was just what was needed to get
the project off the ground
the facebook back currency is expected
to launch in 2021
so what has changed
[Applause]
we were extremely naive in the first
version of our white paper with a number
of ideas
and to some extent it was really
exciting to see that the public sector
reaction to these ideas accelerated the
pace of innovation
christian catalini is the chief
economist for the dm association
the switzerland-based non-profit which
oversees the currency's development
he walked me through the changes he's
hoping will make dm
more palatable to regulators starting
with the coin itself
libra was originally pitched as a
universal currency backed by a basket of
central bank issued money including the
dollar
euro and japanese yen now as dm they
plan to launch
multiple coins instead each backed by a
single nation's currency
the first to be piloted would be the dm
dollar which will be pegged to the us
dollar
there are plans to launch a
multi-currency coin as well but that
will be further down the line
so a big step of our dialogue with
regulators has been
actually talking about a phased approach
to launch we moved to a design that
really starts with single currency
stable coins and therefore is a much
more natural evolution
of the current system stable coins are a
type of cryptocurrency that derive their
value from an underlying asset
like government money or gold as you
likely guessed from the name
they tend to see less price fluctuations
than other cryptocurrencies like bitcoin
but a global reliable alternative to
government-backed money
could be destabilizing for some emerging
markets
the fear is that dm could be used as a
substitute for
or even replace a country's own volatile
currency
this has already happened with the us
dollar in countries like zimbabwe and
ecuador which were struggling with high
inflation
this phenomenon is known as
dollarization no stablecoin today
actually has a good solution towards
dollarization say you're operating in a
country
that is going maybe through
hyperinflation you have to be compliant
with all local
regulations and maybe we'll have to
convert after a certain balance to local
currency
that essentially cuts out the channel of
dollarization and really mitigates a lot
of the worries about capital
substitution the latest version of dm
also walks back on another key feature
the idea of eventually becoming
permissionless
unlike private cryptocurrencies
oversight of the coins will be
controlled by the dm
association its existing 26 members will
be tasked with operating the dm payment
system
minting coins and managing reserves
while some original members of the
association
such as paypal mastercard and ebay have
dropped out
new ones like shopify and singapore
sovereign wealth fund termatic have
opted in
unlike a permissionless blockchain
product like bitcoin
which the whole point is that it doesn't
require trust that it relies on network
effects that the validation is baked
into the code
rather than being reliant upon third
parties validating
diem doesn't work like that gm has the
members the validators and you have to
trust them
and for that reason i'm not convinced
that as a system it's necessarily an
improvement on the existing one
building trust is key to dm success but
it's linked to facebook makes that
difficult
facebook's reach is huge it had 2.8
billion monthly active users in the
fourth quarter of 2020. that's a big
advantage when it comes to the
distribution of dm
but the company's history of privacy
scandals gives critics
some pause privacy is about the wallet i
mean not you know not about the currency
dave burch is an expert on digital money
he's referring to the novi digital
wallet
which is owned and controlled by
facebook a digital wallet is what makes
sending and receiving digital currencies
possible
users will be able to add their local
currency to the wallet
novi converts it into a dm digital
currency and transfers it to the
recipient in an instant
novi will be accessible from facebook's
apps like messenger and whatsapp
the scale could allow it to become one
of the largest reservoirs of financial
information
in the world what most people would be
nervous about i'm sure
is all of that transaction data going to
facebook to be used for
advertising and other purposes which
they don't really benefit from
themselves and i think it's down to
facebook to reassure people
but novi has stressed that these fears
are unfounded
saying transaction history will only be
visible to customers
we also put the question to dm what do
you say to people who are
concerned that one's financial identity
so
what i'm spending my dm on could be
eventually merged with their digital
identity so my
social media profile we take privacy
extremely seriously
ndm itself will not have private
information about the customers some of
our members made commitments
with regards to data separation between
for example social and financial data
the dm association has also taken
concerns about financial crimes such as
money laundering on board
if you don't know who the money is going
to and from
you you can't track or trace or do
anything effectively and governments
will never allow that because you don't
want it to become a mechanism for money
laundering and
crime and corruption of all kinds dm now
requires its members to undertake some
of the same
rigorous anti-money laundering checks
required by traditional financial
institutions like banks
for example they will have to verify a
customer's identity
to make sure they are genuinely who they
claim to be
finally there are also some important
monetary policy effects to consider
not least because of the enormous
reserves that would be needed to support
dm
if the coins proved popular the ambition
of dm
is that it should appeal to billions of
people there should be billions of users
so that implies there's going to be
trillions of coins
and everyone backed by um cash or cash
equivalents
that is one hair cover lot sitting in a
very large
fund being managed by a fairly opaque
group of institutions and that is a fund
that's easily big enough to move markets
and easily big enough to to really hold
central banks to ransom
whether dm is widely adopted or not it
has been credited with spurring central
banks into creating digital currencies
of their own
china sweden singapore the uk and
venezuela
are all working on cbdc's or central
bank digital currencies
the moment cbdc becomes available we can
stop operating the reserve what i call
the analog retrofitting of the faster
digital rails
on on the older fiat rails and start
operating
at you know digital speed diem is
currently in talks with swiss regulator
finma to secure a payment system license
this would mark a significant milestone
for the digital currency
supplying it with the seal of approval
from regulators that was absent before
only then will it be able to launch and
we will find out if it is indeed
a novi dm or latin for new day
after all thanks for watching would you
use a diem coin
let us know in the comments below and
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