Since it was announced three weeks ago, Libra has come under increasing regulatory scrutiny around the world. Many fear it could quickly become a universally accepted form of payment at a time when cryptocurrencies remain largely unregulated. Facebook has said it spoke with regulators before the announcement, something Powell confirms, but that effort apparently failed to assuage concerns.
While Powell acknowledged that he does “support reasonable innovation in the financial services industry,” he said that Libra “raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.”
He said the Fed’s Libra working group is collaborating with US regulatory agencies and the Treasury Department, as well as central banks and governments around the world. The Treasury’s Financial Stability Oversight Council has also set up a staff-level working group to look at Libra and it met last week to discuss the project, Powell said.
“The process of addressing these concerns, we think, should be a patient and careful one and not a sprint to implementation,” Powell said.
Powell avoided directly answering a question from Financial Services Chairwoman Maxine Powell about whether the Fed actually has any authority to “supervise and regulate what could be the world’s largest payment system.” And he said it’s too soon to tell whether the Treasury will designate Libra or its management group as systemic financial market utilities or non-banked financial companies, which would subject them to enhanced regulations.
Waters and other Committee Democrats last week officially asked Facebook to immediately implement a moratorium on Libra’s development as they examine the potential effects of the currency on user privacy and the economy, something the company has not said it will do. Asked by Colorado Democrat Ed Perlmutter whether he would support a moratorium on Libra’s development, Powell did not say he would but stressed the project should be evaluated thoroughly and slowly.
“There’s a lot of work going on at the Fed and other agencies within the government to understand these issues,” Powell said. “It’s something that doesn’t fit neatly or easily within our regulatory scheme. It does have potentially systemic scale … So I strongly believe we need to be taking our time here.”
Perlmutter, however, said: “I’ll take that as a yes.”
The House Financial Services and Senate Banking Committees are set to hold hearings next week to examine Libra’s implications for financial systems and user privacy. David Marcus, the Facebook executive who headed up the Libra project, is expected to testify.