Facebook seeks to placate lawmakers over Libra but Mnuchin raises "serious concerns"

Facebook seeks to placate lawmakers over Libra but Mnuchin raises "serious concerns"

Facebook's Libra chief is bidding to sooth lawmakers' concerns over the digital currency, promising that it won't be launched until it has received regulatory approvals and that it will not compete with sovereign currencies o enter the monetary policy arena. The charm offensive comes as Treasury Secretary Steve Mnuchin expresses "very serious concerns" that Libra could be misused by terrorists.

In prepared testimony to be delivered on Tuesday before the US Senate committee on banking, housing, and urban affairs, David Marcus says Facebook "strongly" agrees that the process for reviewing Libra "needs to be patient and thorough".

"In fact," he continues, "I expect that this will be the broadest, most extensive, and most careful pre-launch oversight by regulators and central banks in FinTech’s history. We know we need to take the time to get this right. And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals."

Because the Libra Association is headquartered in Geneva, it will be supervised
by the Swiss Financial Markets Supervisory Authority (Finma) but it also plans to register in the US with FinCEN as a money services business.

Marcus says that Facebook and its partners in the Libra Association have "no intention of competing with any sovereign currencies or entering the monetary policy arena," and that they will work with central banks to ensure this.

Meanwhile, Marcus stresses that, unlike some cryptocurrencies, Libra is "a payment tool, not an investment" and that "people will not buy it to hold like they would a stock or a bond, expecting it to pay income or increase in value".

Instead, it is designed to act like cash, making it easier for people to send money around the world, creating "economic empowerment".

"We have done a lot to democratize free, unlimited communications for billions of people. We want to help do the same for digital currency and financial services, but with one key difference: We will relinquish control over the network and currency we have helped create," he says.

Whether Marcus's testimony is enough to win over lawmakers is questionable. Over the weekend, it emerged that the Democratic majority that leads the House Financial Services Committee is considering a block on tech firms like Facebook issuing digital currencies.

Draft legislation dubbed the 'Keep Big Tech Out Of Finance Act', which has been seen by Reuters, suggests a $1 million per day fine for companies that violate the potential new rules on tech giants acting as financial institutions.

"A large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function, as defined by the Board of Governors of the Federal Reserve System," reads the text.

Reuters notes that the plan would struggle to pass the house or senate. However, it is another sign of opposition to the Libra project, which has drawn criticism from, among others, Donald Trump.

Trump's Treasury Secretary Steve Mnuchin on Monday said during a press conference that Libra “could be misused by money launderers and terrorist financiers” and that it was a “national security issue”.

"Cryptocurrencies such as bitcoin have been exploited to support billions of dollars of illicit activity like cyber crime, tax evasion, extortion, ransomware, illicit drugs and human trafficking," Mnuchin said, adding that he is "not comfortable today" with the plan and that Facebook and co "have a lot of work to do".

Comments: (1)

Christopher Williams
Christopher Williams - RTpay - Winchester Uk 16 July, 2019, 14:35Be the first to give this comment the thumbs up 0 likes

Having just listened to Joe Kernen on CNBC, and Mnuchin last night, I am confused as to what they may be seeing in the Libra project which is totally at odds to my view. 

Kernen says Libra has no value, unlike Bitcoin which he sees as a product of assured value. I cannot understand how a 'currency', such as Libra, which is 100% backed by the leading fiat currencies of the world (and all funds held in their government paper or in accounts in their leading banks) is other than secure in a way that Bitcoin can never be. 

He also confuses the distributed ledger methods used for Bitcoin, which are both slow and involve heavy usage of power, with the fast, low power requirement of Libra.

I understand the US administration may have doubts about Facebook's role, as a US-based company; I am not sure if they are also concerned about the majority of the 27 other companies (with equal roles in the Libra association) which are American? Does it not occur to any of them that it might be better not to block from offering a very valuable payment methodology to the two billion Facebook users around the world (many unbanked), than leave this to the Chinese organizations? 

I wonder what the Swiss government makes of a Swiss non-profit association, with multiple large company ownership, being subjected to control from DC? 

Perhaps the answer is for Libra to block any business from USA - and service all other countries - until there is an administration there who understand the enormous value of enabling, at the very least, remittances to be transferred at 1% as against the current 7%? 

It may mean that only ecommerce merchants from other than USA would be able to work over the network as well? A silly idea, of course, but perhaps not as silly as the objection being expressed in DC, including confusing LIBOR with Libra!