“Facebook has burned down the house over and over, and called every arson a learning experience,” said Democrat senator Sherrod Brown yesterday at the US Senate Banking Committee. Referring to Facebook’s venture into cryptocurrency with Libra, he added, “We would be crazy to give them [Facebook] a chance to experiment with people’s bank accounts, and to use powerful tools they don’t understand, like monetary policy, to jeopardise hardworking Americans’ ability to provide for their families”. These comments, made at a US Senate hearing on Libra cryptocurrency add to the chorus of skepticism across Washington.
Key issues raised by Senators: “Can we trust Facebook with our money and economy?”
Senator John Kennedy asked David Marcus, head of Facebook’s Libra project, quite sarcastically, “Isn’t it true, and I really want your opinion, that Facebook has chosen to advance a set of values in which truthful reporting has been displaced by flagrant displays of bull-[redacted] … Facebook now wants to control the money supply. What could possibly go wrong?”
1. Facebook says people don’t have to trust it, ensures high privacy standards
Trusting Facebook was a key theme that played out throughout the Senate hearing. Marcus said that “Trust is primordial and we’ve made mistakes in the past and we’re working hard to get better. We’ve invested in a number of programs noticeably on privacy and election integrity. Facebook will only be one among a hundred different members of the Libra Association and will have no special privilege. Means you will not have to trust Facebook,” Marcus added. He also said that Facebook will “have to have” the highest standards of privacy. However, Senators didn’t seem to buy the argument that Facebook would have no special privilege within the Libra Association. Senator Brown highlighted that only Facebook has access to 2 billion people and to say that it’s just one of many is simply not true.
Americans who trusted Facebook got ‘burned’: Brown said that Facebook has had a long track record of abusing users’ trust. He reiterated that Facebook said they were keeping users’ data safe when they were allowing other companies to sift through private messages and had to shut down those programs. “Just trust us, that’s what Facebook has said again and again, and every time Americans trusted you, they got burned. You think people should trust Facebook with their hard earned money?” Brown also asked if people should really trust Facebook with their bank accounts and the economy? “I think that’s delusional, ” he said answering his own question.
Libra will insulate financial data and be interoperable: Senator Brown asked if the Calibra wallet would gather financial data from transactions made on it; and if Facebook users could make payments with other digital wallets, Marcus replied that the Libra will be interoperable – meaning wallets can send money from one wallet to another wallet, which isn’t possible in the current system. In his testimony, Marcus also insisted that Libra was designed to insulate financial data. “The way we’ve built this is to separate social and financial data,” Marcus said, “because we’ve heard loud and clear from people that they want those two data streams separate.” Marcus also said that privacy on Libra will be similar to existing blockchains; transactions would include only the sender and receiver’s public addresses, the transaction amount, and the timestamp.
2. Why Libra is headquartered in Switzerland, how it will be regulated
“By setting up Libra in Geneva, Switzerland, it makes me wonder whether the rules of the road and supervisory insight will be focused more on the Swiss financial market and supervisory authority” said Senator Mike Crapo. He asked Marcus if the US should lead the way in framing regulations on digital currencies. “Yes, the US should lead”, Marcus said, before adding that Facebook chose Switzerland not to evade any responsibilities or oversights, but because it’s a well established international place with headquarters for WHO, WTO and the BIS.
Will Libra meet the US’ sectoral regulations?: Despite the fact that Libra Association will be headquartered in Switzerland, it will still register with FinCEN (Financial Crimes Enforcement Network) and as a result, will have oversight from US regulators, he said. Senator Crapo pointed out the sectoral nature of regulations in the US, where every single concerned body – FinCEN, OFAC and FTC in this case – will want to have a piece of legislation on how to regulate Libra. He asked how will Facebook deal with that? Marcus dodged the question by saying that it was “not for me to say”. He also said that Facebook and the Libra Association don’t position themselves to compete against sovereign currencies or interfere with monetary policy. “In fact, we will work with the Federal reserve and other Central banks to minimise the risk of any competition,” he said. Senator Sinema had asked Marcus if a scammer based in Pakistan uses an exchange in Thailand to scam an Arizonan whose wallet is issued by a company in Spain, which regulator would the Arizonan contact to seek help?
If Facebook was open to feedback, they wouldn’t have pushed for Libra: Senator Brown reminded Marcus that Facebook initially said that they were open to feedback on Libra. “I’ve said you it’s a bad idea” said Brown. Referring to other senators, President Trump and international leaders who have told Facebook the same, he asked if there’s anything that economic experts can say to Facebook that’ll stop them from launching Libra. Marcus said Facebook agrees with the legitimate concerns raised over Libra, its released the white paper so early, because it “wanted to take the time to get this right” and “to ensure that there’s proper regulatory oversight”…”And if there are regulatory oversights that aren’t appropriate, then we won’t launch it until it is,” Marcus said in response, however, he didn’t answer if Facebook will actually consider an opinion that doesn’t suit their idea on the currency.
3. National security and terrorism related concerns with Libra
Libra posed national security concerns: Senator Sinema said that she had national security concerns about Libra. She said that drug traffickers might try to use Libra to finance their operations along Texas’ southern border. Meanwhile, Senator Cortez Masto asked Marcus about terrorist financing. Marcus responded by explaining that if the cash transactions that are associated with crime become digital, “it will be better.” He added that KYC (know your customer) and AML (anti money laundering) programs will be present on the Libra network, and that Libra will register with FinCEN, and that the Calibra wallet and other wallets on the network will comply with the Bank Secrecy Act.
People without bank accounts may be more vulnerable: Senator Sinema was concerned about unbanked people who may be particularly vulnerable to fraud and abuse. Marcus said that the Libra Association will need to find the right approach to ensure that “publishing services on the Libra network has controls.” Marcus also noted that educational materials would be provided to help users avoid fraud. Senator Masto said that “when it comes to pulling around a briefcase full of cash–transnational criminals don’t do that anymore. What you’re creating right now is an opportunity for them to engage in money laundering and criminal activities.” She demanded that Facebook be more transparent with regards to this issue.
4. Is Libra really not for profit?
Senator Pat Toomey said, “You say Libra is not for profit, but I went through the dividends that original investors would be getting, which is huge. That strikes me as odd. That sounds like a for-profit” – to which Marcus replied that Libra doesn’t pay interest, because it’s cash and Libra is going to be used as a payments instrument. Libra will have some income that’ll pay for the operating costs of the association and potentially making some returns to all the organisations in the association.