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Facebook’s Libra digital currency project—initially seen as marking a new era of legitimacy for cryptocurrencies—appears to be at risk of sliding into irrelevance.

The project continues to come under intense attack from regulators and, according to The Wall Street Journal, at least two major payments players are considering pulling out of the endeavor entirely,

Mastercard ticker: (MA), Visa (V), and other partners are having second thoughts about their participation in the Libra Association, the Swiss nonprofit that will build and run the payments network, the Journal reported on Tuesday. It also reported that executives at some of the companies that are currently part of the association have declined to publicly support it, demonstrating growing skepticism over whether the project can pass regulatory muster.



On Thursday afternoon, the Financial Times reported that PayPal (PYPL) pulled out of a key meeting with regulators in Washington, D.C. and is close to quitting the Libra Association.

The payments company was one of the initial 28 members of the Libra Association who signed non-binding letters of intent to provide funding to build the fledgling currency’s infrastructure. A PayPal spokeswoman did not immediately respond to a request for comment.

Such developments could pose significant danger to Facebook's ambitions for widespread adoption of the digital currency and to the execution of the project itself. Failure to successfully launch Libra would be a serious blow to the tech giant, as it faces ever-present demands from investors for growth and increasing regulatory pressure from lawmakers and government agencies.

The head of the project at Facebook (FB), David Marcus, pushed back on the Journal report in a tweet Tuesday evening. He said the official membership of the Libra Association will be finalized over the coming weeks, and that he had “no knowledge of specific organizations plans to not step up” and become formal members of the Libra Association. Facebook declined to comment. Mastercard, Visa, and the Libra Association didn’t immediately respond to a request for comment.

When the Libra project was announced in June, payments companies such as Visa, Mastercard, PayPal, Stripe, and MercadoLibre’s (MELI) Pago were listed as founding members, along with companies like eBay (EBAY), Lyft (LYFT), Spotify (SPOT), and Uber (UBER).

Facebook faces an increasingly daunting path to gain approval for Libra from regulators. Both the U.S. Treasury and Federal Reserve have said the project as currently proposed raises serious anti-money-laundering and antiterrorism financing issues. Treasury Secretary Steven Mnuchin went so far as to say that “this is indeed a national security issue,” at a July press conference. Facebook has said it is working with regulators to address their concerns and won’t launch Libra in any country before that nation’s regulators have signed off on it.

European regulators have explicitly said they will not allow Libra to move forward. Last month, France and Germany said in a joint statement they had agreed to block the digital currency from launching. “[N]o private entity can claim monetary power, which is inherent to the sovereignty of nations,” they said.

Displacing the current global payments system, which is highly regulated and seen by states as a powerful tool for implementing policies like sanctions, was always going to be a difficult task. But with strong European opposition, no timeline for U.S. approval, and American regulators publicly raising some of the biggest red flags, Libra risks never getting off the ground in a meaningful sense.

The basket of assets that backs the currency won’t include the Chinese yuan, so it is hard to see regulators there letting Libra launch. India—where Facebook has already received huge amounts of criticism over its now-outlawed plan to provide free internet access that favored its own platform—is among the least cryptocurrency-friendly countries in the world.

The stark reality is that despite Facebook’s massive size and reach, a global payments system that you can’t use in Europe, China, India, or the U.S. just isn’t that useful—or really a global payments system at all.

Write to Ben Walsh at ben.walsh@barrons.com