Two days of hearings investigating Facebook’s intention to create a digital currency began on a testy note Tuesday morning.
Sen. Sherrod Brown (D-OH) fired an opening salvo at the social network in opposition to the establishment of the Libra digital token:
“Facebook is dangerous. Now, Facebook might not intend to be dangerous — but they certainly don’t respect the power of the technologies they are playing with,” he said.
Brown was incredulous at Facebook’s ambition to debut a consequential new product as it reels from a series of scandals.
“Now Facebook is asking people to trust them with their hard-earned paychecks,” he continued. “It takes a breathtaking amount of arrogance to look at that track record and think, you know what we really ought to do next? Let’s run our own bank and our own for-profit version of the Federal Reserve for the world.”
Sen Sherrod Brown (D-OH) called Libra “Facebook’s Monopoly Money” in a press release last week.
He was not alone in his skepticism on the Senate Banking Committee. Other Senators raised questions about preventing money laundering, enforcing international sanctions, vetting digital wallet makers, governance of the cryptocurrency, and why their constituents should trust Facebook.
The hearing swung from grilling of Facebook over its continuing public embarrassments to support for the company’s proposed financial innovation. Sen. Michael Crapo (R-ID), chairman of the committee, was optimistic about the possibilities Libra presented, as was Sen. Patrick Toomey (R-PA).
“Despite the uncertainties, Facebook’s stated goals for the payments systems are commendable,” Crapo said in his opening statement. Toomey said it would be premature to “strangle this baby in its crib.”
The hearings come in response to Facebook’s announcement in June that the company planned to make a global cryptocurrency, dubbed Libra, available in 2020. The social network intends for people to use the online token like cash in smartphone transactions. Facebook will peg Libra’s value to a currency reserve of U.S. dollars, Euros, British pounds, and Japanese yen. Libra’s intention to be a “stablecoin” puts it in contrast with Bitcoin, the world’s most famous cryptocurrency, which many view as a volatile commodity.
David Marcus, CEO of Facebook subsidiary Calibra and the former President of Paypal, testified before the Senate Banking Committee July 16, chaired by Sen. Mike Crapo (R-ID), and is scheduled to address the House Financial Services Committee, chaired by Rep. Maxine Waters (D-CA), the following day.
Marcus’ division of the company is building the digital wallet, called Calibra, to store and send Facebook’s cryptocurrency. He framed Libra as a public good for the U.S. in its pursuit of technological dominance on a global scale, warning “If we don’t lead, others will.” Facebook has said Libra will be a new resource for those without bank accounts, positioning it as a boon to the developing world. Marcus offered Facebook’s deference in his opening statement.
“Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals,” he said.
Libra has sparked fierce backlash from lawmakers, including the president, who tweeted that the token will have “little standing or dependability” days before the hearing. He said bitcoin and other cryptocurrencies weren’t real money and said Facebook should seek a traditional banking charter. The company implied it will not do so in a statement saying the Libra Association, a Switzerland-based independent consortium of organizations overseeing and financially backing the cryptocurrency, will not operate like a bank. French, English, Singaporean, and Chinese financial officials have also decried and discouraged Facebook’s efforts, as has the European Central Bank.
Treasury Secretary Steven Mnuchin echoed Trump in a press conference the day before the hearing, “I’m not comfortable with [Facebook] launching a cryptocurrency today.” He said Bitcoin and other digital monies had been largely defined by their “illicit uses” like money laundering and financing terrorism and that Facebook had not demonstrated preparedness for those use cases. Facebook declined to comment on Mnuchin’s remarks, pointing to Marcus’ opening statement.
The chairman of the Federal Reserve said the previous week that Libra “cannot go forward” without satisfactory answers to lawmakers’ questions.
“Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability,” he said at a Congressional hearing.
Facebook’s Marcus said he and other top company brass “strongly agree” with the Fed that the review of Libra should be “patient and thorough.” At the same time, Libra’s website seem to contradict his restraint in its echoes Facebook’s famous “Move fast and break things” ethos. The site reads, “Reinvent money. Transform the global economy.”
Marcus laid out Facebook’s plan to make money from the creation of Libra in his statement as well. He said the company would not earn money from the currency itself, nor did it expect the Calibra wallet to turn a profit upon launch. People and businesses engaging with Libra would likely use Facebook more, Marcus said, usage which would earn Facebook more advertising revenue. Data from Calibra will not be used for Facebook’s ad targeting, he added.
Facebook introduced Libra, a product that could send shudders through the global financial system, at a time when trust in the company has dipped to an all-time low. Scandals have plagued the social network for the better part of three years, beginning with its failure to defend itself and its users from Russian misinformation and manipulation campaigns during the 2016 election and continuing with revelations on the company’s mishandling of users’ personal information. The FTC fined the social network $5 billion last week over its data privacy practices.