Libra Method: http://go.t500track.com/SHLE This week, both the Senate Banking Committee and the House Financial Services Committee grilled Facebook’s David Marcus, head of the Libra cryptocurrency project. Lawmakers bluntly laid out a variety of doubts about the Libra proposal, including whether the system could prevent money laundering, and whether Facebook should be trusted to collect transaction data, given its shoddy history of handling user information.
But perhaps the most high-stakes question on legislators’ minds was whether Libra might introduce a new kind of systemic financial risk. Though often derided for their speculation-fueled volatility, bitcoin and other cryptocurrencies are largely disconnected from the mainstream financial system, and represent a relatively tiny slice of global value. Libra, by contrast, is designed in a way that could make it very large, and very closely entwined with things like national currencies and even small local banks.
If and when Libra gets up and running—Facebook has said it will launch in 2020—it would have a built-in base of nearly 2.5 billion Facebook users worldwide, or roughly one third of the entire global population. Facebook and Marcus have said that reaching unbanked people is a major goal for Libra, and pointed towards close integration between Libra and Facebook tools such as Messenger. The social network, then, plans to push hard to get its users to convert funds to Libra. Rep. Michael San Nicolas (D–Guam) yesterday speculated that Libra could easily attract $100 billion in deposits—about one tenth of the assets held by Goldman Sachs—and potentially much more.
WITHIN HOURS OF its splashy Libra announcement last month, Facebook’s cryptocurrency plans had become a political cudgel. Drawing on Facebook’s privacy missteps and a gathering storm over antitrust, lawmakers swiftly demanded the company halt work on Libra while it addressed how it would avoid past mistakes. Those calls didn’t pose an immediate threat. Now, though, the project is getting attention from those who could potentially cool or delay Facebook’s ambitions: global regulators.
On Wednesday, Federal Reserve Chair Jerome Powell told the House Financial Services Committee that Facebook’s push into finance posed “many serious concerns.” In addition to worries about privacy, money laundering, and consumer protections, Libra poses serious risks to global financial stability due to the enormity of Facebook’s user base, Powell said. “The process of addressing these concerns should be a patient and careful one, not a sprint,” he said, adding that the Fed is collaborating with other federal agencies and central banks abroad.