In many respects, Libra sounds like the way of the future.
It would be a universal, stable currency that people could access from their smartphones and send around the world for cheap. It could increase access to financial services for people who can’t afford bank fees and minimums.
But, that shining vision for Libra is clouded by a big concern: Facebook is behind it.
Criticisms of scandal-ridden Facebook dominated this week’s House and Senate finance committee hearings on Libra, indicating the social media company is the biggest hurdle to bringing the currency to life.
“Distrust of Facebook is a pretty universal feeling here,” Sherrod Brown, the senior member of the Senate Committee and an Ohio Democrat, said during the hearing.
Lawmakers don’t trust Facebook, because of its data leaks and enabling of election tampering and misinformation. Experts say they’re right to be skeptical. Libra, they say, centralizes power in the hands of Facebook and a relatively small number of other entities in an association based in Switzerland.
“The tech companies brought this upon themselves,” said Phil Liu, chief legal officer with digital asset investment management firm Arca. “There’s this mentality that they’ll go in and do whatever they want to do and that the laws will change to fit them … I don’t think they necessarily understand the way to work with lawmakers and regulators to address current laws and systemic risks.”
Fears about Facebook running Libra
Lawmakers fear Facebook’s large audience would drive rapid adoption of digital currency, perhaps supplanting the dollar as the world’s reserve currency.
Although other cryptocurrencies still have relatively few users and require some technical know-how to use, Facebook would make Libra accessible on tools billions of people use everyday, including Facebook, WhatsApp and Messenger. And the company is expert in simple user experience.
That fear begets another: that Libra could become so widely used that it would harm central bankers’ ability to manipulate the money supply to enact monetary policy. That could leave the Libra Association in a position to tinker with economies on its own.
“A lot of countries extract monetary authority by tinkering with their currencies,” said Nick Pappageorge, a senior analyst for market intelligence firm CB Insights. “If you all the sudden have a stable alternative though Facebook, that kind of undermines your authority there.”
And lawmakers don’t trust Facebook to make decisions about the global economy.
“Facebook CEO Mark Zuckerberg has said that Facebook might be more like a government than a country, but no one elected Mr. Zuckerberg,” Brown said. “They’re not running a government, they’re running a for-profit laboratory.”
Facebook says this is why it set up the independent, Switzerland-based Libra Association to manage the currency, so one company wouldn’t have that power. David Marcus, the Facebook executive heading Libra, told lawmakers the association would work with central bankers to avoid competing with sovereign currencies.
Nonetheless, Federal Reserve Chairman Jerome Powell says Libra presents “serious concerns.” Both the Fed and the Treasury Department’s Financial Stability Oversight Council set up working groups to evaluate the currency’s potential implications.
No Libra without Facebook?
Facebook has said it won’t offer Libra without regulatory approval, meaning it won’t release the digital wallet or other tools for its users to access the currency, according to a company spokesperson.
“We recognize that we are only at the beginning of this journey,” Marcus told lawmakers.
Libra itself could still launch, though, if the Libra Association decides. But if Facebook’s 2.4 billion users around the world can’t access it, the project probably won’t attract the buy-in that would generate those benefits.
“It will get zero traction unless people can’t use it in the US, and that isn’t going to happen unless the lawmakers give an OK,” Liu said. “Without Facebook, it will be like any other little stablecoin project.”
So Facebook and lawmakers seem to need each other to bring about Libra’s positive benefits, a tough ask given their distrust of the company.
“You really think people should trust you with their bank accounts?” Brown asked Marcus. “I think that’s delusional.”
Some lawmakers have proposed halting the project altogether. House Committee Chairwoman Maxine Waters introduced draft legislation that would ban large internet platforms from operating cryptocurrencies.
But banning Libra altogether would prove difficult. The bill wouldn’t stop the Libra Association, which itself is not an internet platform, from releasing Libra. And beyond that, the bill’s legality has already been called into question.
“The bill to ban your actions,” Minnesota Republican Tom Emmer said, addressing Marcus at the House hearing, “has no Constitutional basis, let alone a basis in logic.”
Liu said it would also be difficult to enforce such a broad bill.
“In its current form … you could arguably say that JPMorgan is a tech company, because it has more developers than Facebook and its own online platform,” Liu said. “I don’t think it will come to pass, it’s an expression of anger by Congress at the arrogance of Silicon Valley.”