Even Amazon isn't big enough to issue its own currency: Richmond Fed

If companies wish to create their own private currencies, they'll need to manage regulatory and security costs that would challenge even the largest firms.

An economic brief from the Federal Reserve Bank of Richmond found that Amazon, for example, would need more scale than it already has to justify the investment in establishing its own currency. The primary costs to operate a digital currency are compliance and managing an infrastructure needed to combat fraud, data breaches and separate the digital currency from the bankruptcy risk of the issuing company.

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The Richmond Fed's note comes as central banks across the globe consider creating digital government-backed currencies that would likely need commercial banks as facilitators.

Both Amazon and Facebook, despite their size, would face challenges in creating digital money, the Richmond Fed contends. Amazon's primary market for a private currency would be its e-commerce marketplace, where it dominates, but not at a level the Richmond Fed estimates would be required for a digital currency to be profitable.

E-commerce is 12% of the total U.S. retail market, and Amazon accounts for half of that, reports the Richmond Fed, citing U.S. Commerce Department data.Based on Amazon charging sellers a referral fee of 15% for each item sold on its platform, Amazon's market share would need to be higher to offset the cost of managing its digital currency, though the Richmond Fed did not say exactly how much higher. Amazon would also need to only accept and use its private digital currency, because to offer both its own currency and traditional currency would dilute the private currency.

Amazon did not return a request for comment. Amazon does not have an active digital currency project, but has reportedly floated the idea of creating a digital currency that would allow its shoppers to convert cash to use across its shopping and entertainment content. It would also be a way to keep shoppers inside its ecosystem and to boost enrollment for its payment app.

The Richmond Fed also said Diem, the Facebook-affiliated stablecoin, has faced international regulatory pushback that led to the project scaling down to a level that challenges its profitability.

The Diem project has evolved to address its regulatory challenges. When it was called Libra, the Facebook project was structured as a stablecoin pegged to a basket of international currencies to offset cryptocurrency's notorious volatility. Politicians and regulators opposed this structure on fears it would impact central bank monetary policy.

Libra changed its structure to peg the stablecoin to a specific currency in each government, and rebranded as Diem in an attempt to demonstrate independence from Facebook. The project's affiliation with Facebook was part of the early regulatory pressure over concerns about data privacy.

More recently, Diem moved its headquarters from Switzerland to the U.S., and narrowed to using the U.S. dollar to back the stablecoin. Diem partnered with Silvergate Bank, a California institution that specializes in blockchain, to issue the stablecoin. The Richmond Fed categories these adjustments as "more limited" than the original proposal. Diem did not comment for this story.