Five Democratic senators have penned a letter to Facebook founder and CEO Mark Zuckerberg urging him to shelve the company’s digital currency plans. The letter claimed that the company can’t be trusted to manage a digital currency and that it will be a threat to financial stability. The letter came hours after Facebook announced it had launched the Novi wallet in a “small pilot.”
Previously branded Calibra, the wallet was announced over two years ago as the official wallet for the Diem digital currency, known back then as Libra. Facebook Financial’s David Marcus announced that Novi would launch in a limited pilot targeting the U.S.-Guatemala remittances corridors.
Remittances are a critical way to achieve financial inclusion. Today, we’re rolling out a small pilot of the @Novi digital wallet app in two countries — the US and Guatemala. People can send and receive money instantly, securely, and with no fees. 1/8
— David Marcus (@davidmarcus) October 19, 2021
The biggest reason for the delay for Facebook has been regulatory backlash. Marcus, who’s the former head of Facebook Messenger, believes that the pilot will help the social media giant assuage regulators’ doubts.
While Novi has launched, it will not incorporate the Diem stablecoin. Rather, the wallet will rely on the Paxos USD, or USDP, previously known as the Paxos Dollar. Users will be able to add U.S dollars into their Novi wallets and convert them to the stablecoin, with user funds being stored by Coinbase Custody. The transfers on Novi will reportedly be feeless, but it’s not clear if conversion to Guatemala quetzals will be charged.
Marcus clarified, “I do want to be clear that our support for Diem hasn’t changed and we intend to launch Novi with Diem once it receives regulatory approval and goes live.”
‘Facebook can’t be trusted with a digital currency’
Shortly after Facebook launched Novi, five Democratic Senators wrote to Mark Zuckerberg to “voice [their] strongest opposition to Facebook’s revived effort to launch a cryptocurrency and digital wallet, now branded ‘Diem’ and ‘Novi,’ respectively.”
The five Senators—Tina Smith (D-MN), Elizabeth Warren (D-MA), Sherrod Brown (D-OH), Richard Blumenthal (D-CT) and Brian Schatz (D-HI)—pointed out that U.S. regulators are still grappling with stablecoins. Regulators that oversee stablecoins are still studying the risks they pose and how to address them, they said. Facebook, therefore, should not be rash in its launch of Diem.
Aside from the general stablecoin risks, the lawmakers believe that Zuckerberg and his team haven’t offered a satisfactory answer on their plans to curb illicit financial flows.
“Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient,” they said, telling Zuckerberg to discontinue Novi and commit to not bring Diem to the market.
Diem replied shortly after Zuckerberg received the senators’ concerns. While stating it was happy to engage with Congress on the “robust controls it spent two years building,” the organization criticized the lawmakers for their shallow grasp of the separation between the two entities.
“Unfortunately, today’s letter from lawmakers to Facebook misunderstands the relationship between Diem and Facebook. Diem is not Facebook. We are an independent organization, and Facebook’s Novi is just one of more than two dozen members of the Diem Association. Novi’s pilot with Paxos is unrelated to Diem.”
Diem further attacked other statements by the senators, one of which related to a claim that it has yet to show how it would prevent illicit transactions. It claimed that Treasury had provided positive feedback on its financial crime compliance network, which it touted to have “the most robust controls in the industry.”
“Unique in the industry, that includes not allowing anonymous transactions with unhosted wallets, until the illicit finance risks they entail can be adequately addressed,” Diem said.
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