Facebook’s audacious vision for creating its own global currency is at risk of being shredded on Capitol Hill, where the social media giant’s attempt to educate skeptical policymakers is doing anything but calming nerves.
Democrats led by House Financial Services Chairwoman Maxine Waters (D-Calif.) and backed by a coalition of watchdog groups are warning that Facebook must put its Libra digital currency on hold so lawmakers and regulators can consider whether it’s a new threat to consumers and the global economy.
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“This raises serious privacy, trading, national security and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers and the broader global economy,” the lawmakers told Facebook founder Mark Zuckerberg and other executives.
Amid the public backlash, there are signs that Facebook’s behind-the-scenes lobbying push is falling flat. Congressional aides told POLITICO that the company seems unprepared for the attacks it is about to receive and that it’s failing to address key questions in briefings ahead of hearings scheduled for July 16-17 in the Senate Banking and House Financial Services Committees.
Facebook has yet to respond to questions that the Banking Committee sent to Zuckerberg in May regarding its then-unannounced digital currency plans and how it handles consumers’ financial information.
In a political climate that has turned hostile to Big Tech, it’s all fueling concerns that Facebook can’t be trusted to become a major force in the financial system, after drawing widespread condemnation for failing to protect the privacy of its 2.4 billion users and facilitating Russian interference in the 2016 election.
“There would have been serious questions about Libra no matter who was attempting to bring it to market,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “But Washington’s interest was dialed up to 10 due to Facebook’s role.”
Facebook is planning to launch Libra on its services next year and is showing no signs of backing down.
“The lead up to the launch of Libra in 2020 builds in the time for conversations with regulators and policymakers around the world to take their questions into account,” said Dante Disparte, the head of policy and communications for a new Geneva, Switzerland-based independent association that will oversee the digital currency. Mastercard, Paypal and Visa are among the Libra Association’s founding members, in addition to Facebook.
The group has published a “white paper” outlining its goals for Libra and its “mission to enable a simple global currency and financial infrastructure that empowers billions of people.”
But there are signs that Facebook is ramping up damage-control efforts.
David Marcus, the Facebook executive who will testify in the hearings, published a 1,500-word post Wednesday that attempted to address some of the questions being raised about Libra.
In an attempt to put some distance between the company and the currency, Marcus said Facebook won’t control Libra and will be one of more than a hundred members of the Libra Association by its launch. Facebook will operate a digital wallet service on top of Libra, he said, but won’t see financial data, and Libra users will be able to use payments services offered by other companies.
“Bottom line: You won’t have to trust Facebook to get the benefit of Libra,” he said.
Among the expanding list of questions posed by lawmakers and watchdog groups: What privacy and consumer protections will be in place? What anti-money laundering safeguards will apply? What risks are being posed to the broader financial system?
“There is a growing sense that the Libra project may not be ready for prime time,” said Dan Murphy, a senior associate at the Milken Institute’s Center for Financial Markets. “While I expect them to be as prepared as possible for the hearings, there is an open question as to whether or not they fully considered the regulatory and economic implications of Libra before releasing the white paper.”
“We look forward to working with lawmakers as this process moves forward, including answering their questions at the upcoming House Financial Services and Senate Banking Committee hearings,” Facebook spokesperson Joshua Gunter said in an emailed statement.
So far, Facebook appears to be stumbling in addressing the concerns. Waters in her new letter to Facebook said it had offered “scant” information regarding its intent for the currency, its potential use and security. One House Democratic aide briefed on Facebook’s plans said there were “lots of practical questions that Facebook didn’t have answers to” and it was “pretty clear they want to more or less self-regulate.”
Some of the concerns are bipartisan. Senate Banking Chairman Mike Crapo (R-Idaho), in a joint letter with Sen. Sherrod Brown (D-Ohio), was the first on Capitol Hill to demand answers from Facebook in May before it announced Libra. Facebook has yet to respond to the request.
“As Facebook and other global companies enter the cryptocurrency marketplace, we need to ensure that the United States’ input and regulatory authorities are being brought to bear,” Crapo said.
Rep. Patrick McHenry (R-N.C.), the top Republican on the Financial Services Committee, said calls for a moratorium on Libra “seem premature” but he too wants greater scrutiny.
“While I have serious questions about Facebook’s plans and intentions — such as how the technology will be employed and why they chose to do this in Switzerland rather than in the United States — a hearing will provide us an opportunity to learn more about their plans,” he said.
Marcus, who heads Facebook’s Calibra financial services subsidiary, in his post defending Libra Wednesday conceded that if not done right it could “definitely present systemic risks no one wants.”
“This is why we believe in and are committed to a collaborative process with regulators, central banks and lawmakers to ensure that Libra helps with the kinds of issues that the existing financial system has been fighting, notably around money laundering, terrorism financing and more,” he said.
One House Democratic aide said Facebook wasn’t quite “Wells Fargo level of unprepared” — a reference to the giant bank’s struggles to explain widespread customer abuse — “but I get the sense that they are hoping their optimism will win out.”
“There will be lots of questions and confusion during these hearings,” Boltansky said. “But my sense is that the driving force will be frustration with Facebook rather than a thoughtful consideration of digital currency policy.”