Rep. Waters, Sen. Crapo Probing Facebook’s Digital Currency Plans
Facebook later this month will offer high-profile testimony to Congress, this time on the company’s entry into digital currency markets (see 1906190060). Calibra Head David Marcus is expected before the Senate Banking Committee on July 16 (see 1906190060) and the House Financial Services Committee on July 17.
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The company’s so-called Project Libra raises serious questions about how it might compete with the U.S. dollar, House Financial Services Chair Maxine Waters, D-Calif., told us last week, days before she and other House Democrats asked the company for a Libra moratorium. Senate Banking Committee Chairman Mike Crapo, R-Idaho, agreed there are questions about Libra competing with the dollar, but he hasn’t drawn any specific conclusions. “I do have concern,” he told us. “I want to learn what [Libra] will be.”
“It’s very important for us to understand exactly what they’re doing,” Waters said, noting the project will be based in Geneva. She said the committee needs to be “involved to ensure that consumers, consumer privacy, data, all of that kind of stuff is protected. So we’re simply asking for a slowdown. A little bit of a moratorium.” Offices for Congressional Blockchain Caucus members didn’t comment Friday.
"We look forward to working with lawmakers ... including answering their questions at the upcoming” hearings, a company spokesperson emailed. Announced in June, the Libra Association is a partnership of 28 companies, including Mastercard, PayPal and Visa. Marcus downplayed the amount of access and control Facebook will have over the new cryptocurrency project (see 1907030050).
The letter from Waters and House Democrats cites Facebook’s troubled past on data security. They aired concerns about Libra promoting an “entirely new global financial system” intended to rival U.S. monetary policy. Libra raises issues of privacy, cybersecurity, trading, national security and monetary policy, they said. The letter said hackers stole nearly $1 billion from cryptocurrency exchanges in the first three quarters of 2018. Because more than a quarter of the world’s population uses Facebook, it’s “imperative” the company halt plans “until regulators and Congress have an opportunity to examine these issues and take action,” said the group, including Reps. Carolyn Maloney, N.Y.; William Lacy Clay, Mo.; Al Green, Texas; and Stephen Lynch, Mass.
It’s not entirely Congress’ place to be asking a private company to halt business plans, said Technology Policy Institute Senior Fellow Sarah Oh. Regardless, Facebook is in for a long, drawn out process getting regulatory approvals in a multitude of U.S. and foreign jurisdictions, she said. The hearings will be useful for lawmakers to understand how the company is interacting with regulators, she said.
More than 30 groups and consumer advocates said Congress and regulators should support a self-imposed moratorium from Facebook until “profound questions” are addressed. The coalition includes the Center for Digital Democracy, Consumer Reports, Electronic Privacy Information Center, Media Alliance, Public Citizen and the Open Markets Institute. They cited national sovereignty, money laundering, corporate power, consumer protection, competition policy, monetary policy and privacy. Some in the group believe Libra is “too dangerous” to proceed, others want “appropriate controls and rules,” and others are undecided: “All of us believe the risks posed by Facebook’s proposal are too great to allow the plan to proceed with so many unanswered questions.”
Libra will likely wait in line to secure a Financial Industry Regulatory Authority broker-dealer license, Oh noted. About 40 other crypto exchanges have been waiting about a year for the same. Libra needs SEC approval for its exchange-traded fund-like Libra coin and will likely need to resolve know-your-customer and anti-money laundering compliance issues with the Commodity Futures Trading Commission and the Financial Crimes Enforcement Network. Oh agreed with George Mason University monetary policy professor Lawrence White’s assertion that Libra will likely function similar to a money market mutual fund. It could take a few years for Libra to settle all these U.S. regulatory issues.
Consider foreign regulators dealing with cross-border flows, and the process could get incredibly complicated, said Speedchain CEO and blockchain expert Daniel Cage. It’s no surprise a digital currency plan at such scale is getting regulators’ attention, he said. Marcus noted Libra would serve individuals who struggle to afford traditional banking services. Cage said it would also provide access to individuals in developing countries where traditional models aren’t readily available.