It is possible that Diem – a new version of Facebook Libra will appear on the market soon. What does this mean for bankers and politicians? And will this project prove to be a greater threat to these groups than? Bitcoin?
Power over money
At the beginning, let us ask ourselves one fundamental question: why politicians do not want to hand over power over money to other groups or entities? Note that the vast majority of the services we have on the private market are reflected in the public space, and no one is surprised. Healthcare: you can get treatment at the expense of ZUS, but you can also privately. The police are there to keep you safe, but you also have another choice – to hire personal security guards. Access to information? Well, you can use public television services, but if you prefer, you have the option of switching to some private station.
It is different with money. And it has been for centuries, even the dawn of humanity. Today it is assumed that money was invented in Asia Minor. Historians still argue whether this one was issued immediately by the local ruler, or whether there were private mints at that time. Well, without the time machine, we won’t settle this question. One thing is for sure. Even if the coins were initially minted by private issuers, they quickly lost the rights to this process. Ancient rulers found it too profitable to have control over currency for anyone other than themselves to do it.
The effect was that politicians have been corrupting currencies before our eyes for centuries. Yes, inflation that’s nothing new! The Roman Empire struggled with it and tried to fight with similar methods that centuries later the politicians closer to us: they tried to regulate the prices of products and services. Effect? Simple to imagine: destroying markets through shortages of goods and creating an “under the counter” selling process.
This problem did not alienate princes or kings. Medieval rulers stubbornly spoiled the coins, beating more money with less and less metal. Their subjects defended themselves by trying to issue their currencies (yes, Satoshi Nakamoto it wasn’t as original as you think!). Effect? Such daredevils were punished with death or torture. Interestingly, it didn’t help. Still the subjects either refused to accept inferior quality “royal” coins or introduced their currencies.
Why did the rulers conduct such a policy? It’s easy. It was pure profit for them. For example, they paid their warriors theoretically the same number of denarii, but in fact they lost less gold, because more and more worthless metals were used to produce currency.
Modern politicians do the same. Except today the process is nicely called debt rollover and economic theory has been added to it.
… And suddenly Diem comes in all in white
Let us remind you that the first information about Facebook’s currency appeared in mid-2020. News that something like Libra (today’s Diem) is to appear on the market led politicians to the white fever. Looking from the side, nothing wrong has happened – a technology company issues its digital currency. Only that company was Facebook – a global network with billions of users. If you start trading with this new e-coin, the demand for fiat currencies will drop.
As a result, Mark Zuckerberg was questioned in Congress. Reason? Officially caring for citizens. After all, we are talking about this terrible Facebook, the mechanisms of which were used in the presidential campaign of Donald Trump! Congressmen vowed it was only about citizens’ privacy.
It even got to the point that CEO Facebook stated that Libra’s fate is not certain and it may not be created.
However, months have passed and the topic has returned with the new economic crisis. Libra, however, is to be created (admittedly under the name Diem) and appear on the market in 2021 with stablecoin initially based on the dollar. It is possible, however, that this is just the beginning, and the project will be expanded, and its currency basket will be swelled with euro, yuan or other fiat currencies.
But why is it so important? And why was Facebook waiting until the crisis to start with Diem?
You know the concept of dollarization. This is the case in those countries where the local currency is damaged by hyperinflation. In Venezuela, consumers prefer the American unit of payment to their bolivars in subsequent versions. Increasingly, they also reach for Bitcoins.
We will now look at what central banks are doing. They try to print the crisis. They have already produced such a huge amount of cash that even the Marshall Plan seems like a children’s sandbox game in the process. Not only that, the aforementioned plan of economic recovery after World War II supported the supply side, and the current reprinting supported the demand side, which additionally shows what a tragedy may await us.
Let us add that inflation is rising today, but is still not very high. Reason? Lockdowns and the crisis – in other words, consumers do not spend as much as, for example, a year ago, because they are afraid for their jobs and the future in general. However, when the situation normalizes, e.g. when the COVID-19 pandemic expires, and people decide that the worst is behind us, they will return to stores in large numbers. Trading in printed dollars will return to levels we saw just a year or two ago. Then what? We have huge amounts of money printed and a post-lockdown economy which could affect fewer goods on the market. The result can be high or even very high inflation. Won’t consumers then start to slip away, seeing their savings melt away cryptocurrencies and Diem Facebook?
Plus, Diem won’t have to go through the long adoption process we’ve seen on the market Bitcoin. On a beautiful day for Mark Zuckerberg, more than 2 billion Facebook users around the world will receive a notification that they can now pay in the portal’s currency. It is not difficult to imagine what will happen next. In a few years, Diem may become a global currency, and its main rival will be the digital yuan (and maybe Bitcoin).
What do politicians say? They definitely won’t give up without a fight! The problem is that they may have missed a certain stage. Only China will be able to issue the digital yuan relatively soon. We will wait even 5 years for the e-euro, and the digital dollar … Well, even in the USA no one seriously analyzes this solution.
It is possible that we are just entering the stage of privatization of the currency market. The problem for the individual, however, will be that the issuers will be corporations that will replace central banks. Every action is also a reaction. So there is also an opportunity for cryptocurrencies. It is possible that Facebook users, encouraged by the convenience of using Diem, will start to reach for independent digital currencies such as Bitcoin more willingly.
In sum. We are probably on the threshold of a new era. The most important question, however, is whether it will be a vision closer to the imagination SatoshiEgo Nakamoto or the creators of “Cyberpunk 2077”?