Lawmakers on the United States House of Representatives Financial Services Committee met today to discuss the possible effects of Facebook’s proposed Libra cryptocurrency project on the financial system.
Committee chair Rep. Maxine Waters opened the hearing with an indictment of Facebook’s past behavior. In her statement, Waters said that there was a, “demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax.” Waters added that Facebook, “allowed malicious Russian state actors to purchase and target ads,” which purportedly influenced the 2016 U.S. presidential elections.
Threat to Financial Systems
Senator Scott asked what is Libra going to do to protect the financial system? Marcus answered that even though Libra is based in Switzerland, it is registered with FINCENT.
“For every account open in Calibra, we’ll make sure that KYC is done. Approach that Libra is taking is using blockchain as an additional reinforcement. We will file every suspicious happening.”
Senator Huizenga wanted to know why does Libra need to have reserves? Marcus explained that they believe that for high-quality payment tool, the digital currency has to be stable, and a lot of them are now very volatile.
“It’s a stability issue – if it’s stable it’s a good money.”
Senator Perlmutter asked where are those reserves he’s talking about? He asked about how to buy something concrete with Libra. The thing is, Libras will be fully reserved; basically, every time a user trades traditional currency for Libra, that money will go into the reserve and stay there until the customer withdraws money from the system.
Calibra’s custody of the keys and coins means the company can move money between its wallet’s users without relying on the blockchain itself; the only time the blockchain gets involved is when a customer wants to send money outside of Facebook to a wallet or service developed by another company.
Marcus said they are discussing with G7 about this issue and added that buying something or sending money to someone would be similar like in the case of Venmo. However, Marcus said, they are not regular intermediary because of much lower costs for people who need it most.
Perlmutter was pretty frank saying:
“We think you’re a bank but you’re not a bank. If you were a bank, we would regulate heck out of you. I want to support you but also don’t want to see anybody hurt here.”
Marcus explained that exactly this is the reason why they announced their plans early – to ensure that they have regulatory sites arranged.
Senator Himes was worried about deflation of currencies that are in the Libra’s basket (Sterling for example) because Libra is said to be backed up with the basket of different currencies.
Marcus admitted that for sure there will be fluctuations.
“We have looked historically at the volatility of dollar in last 20 years and if you look at the fact that the half of the basket is in dollars – it should be pretty stable.”
However, Himes wanted to know what is a difference Libra has from exchange-traded funds (ETFs):
“This looks to me as an ETF to me. Elaborate to me why it isn’t ETF. if you have security backed by other security – you are an ETF.”
Marcus said Libra is a payment tool.
“Nobody will buy Libra as investment – it’s for stability. This product will not be actively managed. You cannot use ETFs for payments.”
Stiver asked a question that actually bothers a lot of people and future Libra users:
“What’s in it for somebody that already has a bank, and his financial situation covered by bank?”
Marcus answered that there’s not much. He said that he doubts that people will pay their rent with Libra any time soon. However, it will be good if you want to send money abroad – you can easily connect your debit cards to the wallet and send it abroad much cheaper.
Mark Zuckerberg vs. Osama bin Laden
Senator Sherman didn’t ask anything but used his 5 mins to have a monologue seemingly forgetting that USA is not the only country in the world. He said:
“We need to bring Mark Zuckerberg here. The consequence of innovation is when Osama bin Laden flew into those two buildings. This is not Libra but Zuck Buck. This is Mark Zuckerbergs baby.”
Senator Barr noted that there is always a presumption that private sector innovation is bad:
“I think it should be reversed. Presumption in this hearing seems to be in the wrong place. What percentage of users of users are unbanked?”
Marcus said that Facebook does not have data of its unbanked users, however, he said that over 8 million of U.S. households are unbanked. He said that they do not want to compete with the dollar nor they plan to come close to its size.