Facebook’s in-house cryptocurrency has drawn global attention and sparked intense criticism. Libra is viewed with suspicion by many governments because it could compete with traditional fiat currencies. Yesterday marked Facebook’s first hearing before U.S. lawmakers.
David Marcus, Head of Blockchain and the lead of the Libra project, stated yesterday that the new platform will not operate as a secret shadow bank. In testimony Wednesday before the U.S. House Committee on Financial Services, he made the following clear:
We will not offer banking services.
Marcus went on to describe the Calibra platform as a payments provider similar to Venmo or PayPal, and he emphasized that individual customer data will not be shared with the Libra Association or Facebook. Facebook was embroiled in scandal last year when it came to light that the company had allegedly sold large amounts of user data to third parties. While Facebook has publicly pledged to improve privacy protections, industry experts remain skeptical.
Beyond privacy concerns, Marcus said he does not view Libra as a security or an exchange-traded fund, though he conceded it might be considered a commodity. Representative Ed Perlmutter said he supports innovation but expressed deep worry about what might emerge once the project is operational and the platform’s “true face” is revealed (paraphrased):
We all share the same concern with you: the resistance you face stems from our belief that you are a bank, but you are not exactly like a bank. If you are a bank, we will regulate you strictly because we’ve seen many people lose money where regulation was absent. That’s the resistance I feel. I want to support your innovation. I want to support the efficiencies you say you will bring. But I also don’t want to see people harmed.
Libra is intended to function as a type of stablecoin backed by a basket of fiat currencies and government bonds. Members of the Libra Association would receive Libra investment tokens whose value derives from the assets held in the “Libra Reserve.” The former chairman of the Commodity Futures Trading Commission argued that Libra should be regulated like a security. He explained that Libra closely resembles an investment vehicle and should be treated accordingly (paraphrased):
As currently proposed, the Libra Reserve essentially operates as a pooled investment vehicle that should at minimum be regulated by the Securities and Exchange Commission (SEC), with the Libra Association registered as an investment adviser.
He also noted that the native Libra token is part of the same investment structure as the Libra investment token and carries similar risks. Therefore, Facebook’s project falls under banking regulations and should be regulated and supervised like a bank (paraphrased):
There is at least a basis for viewing the Libra Reserve as a bank or for applying bank-like regulations to it. There should be limits on the assets of the Libra Reserve and a prohibition on the Reserve’s ability to make loans or function as a de facto bank.
Marcus stressed during the hearing that Libra does not aim to compete with the dollar or other sovereign currencies. The exchange made clear that many questions remain unresolved, including who will oversee Libra and which institutions will be responsible for its supervision. Given the time constraints and the project’s complexity, creating appropriate global regulation is challenging for a system that could have far-reaching effects on the financial system. Facebook plans to launch the Libra coin in the first quarter of next year.
Featured Image: PopTika | Shutterstock