Banking News

BIS outlines policy responses to Facebook’s Diem

diem stablecoin currency

Today Agustín Carstens who heads the Bank for International Settlements (BIS), spoke about regulating big tech, mentioning the Diem stablecoin founded by Facebook on multiple occasions . 

Despite the challenges, Carstens highlighted that big tech has brought significant benefits, including providing credit for small businesses and improving financial inclusion.

However, he spoke about their scale and ability to go “very quickly from ‘too small to care’, to ‘too big to ignore’ to ‘too big to fail’.” Diem may soon go live “likely with rapid adoption around the world,” he said.

The BIS General Manager pointed out three big tech challenges: financial stability risks, inhibiting competition, and their incentive to collect personal data resulting in data governance issues.

Talking about Diem, his first concern was the potential for rapid adoption and how Facebook could use the data to concentrate market power. There’s also the threat that large scale stablecoin adoption could impact bank business models and consequently credit. And thirdly, there’s the potential for dollarization or even “Diem-isation.”

Policy responses: China’s roadmap

China’s recent clampdown on big tech was highlighted multiple times by Carstens when he outlined potential policy responses. While big tech are primarily based in the U.S. and China, it is the latter where fintechs have dominated first. Alipay and WeChat Pay extended their mobile payment duopoly into credit, wealth management and beyond.

The response by China has been rapid and broad. China strengthened its antimonopoly guidelines, and similar steps are being taken in several other jurisdictions around the world. 

Addressing financial stability, Ant, the owner of Alipay was told to put its financial activities into a financial holding company. The same happened with Tencent, the owner of WeChat Pay.

This year China has stepped in over personal information, trying to limit how big techs collect data. 

Not mentioned by Carstens was how this data restriction has even extended to the digital yuan pilots. The central bank digital currency (CBDC) wallet deliberately  provides sub wallets for online purchases at particular stores to make it harder for outlets to track digital yuan payments.

Beyond the three regulatory avenues for antitrust, financial stability and data protection, issuing a CBDC is in itself a response to big tech by providing an alternative to stablecoins. Additionally, it enables interoperability between payment systems which are otherwise walled gardens. China has cited this response to the Alipay – WeChat Pay duopoly as one of its primary motivations for digital currency issuance.

Apart from regulations and CBDC, a third response is to improve existing payment systems. After all, if payments were fast, cheap and low friction, there might not be a lot of demand for stablecoins. So it’s a matter of broadening access to domestic payment systems and enabling cross border interoperability.

There’s no question that China has taken decisive steps to reign in big techs, which will likely be effective. It’s hard to envision using China’s response as an example for the United States Senate or Congress to learn from. That said, the United States’ antitrust moves started before China’s. It just takes longer in a democracy.


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