Ahead of highly anticipated hearings this week, Facebook Vice President David Marcus, head of the company’s blockchain division, said in his prepared remarks that Facebook won’t move forward with its Libra cryptocurrency without full approval and regulation.
Libra has sparked global concern from politicians since Facebook announced its plans for the new technology in June, provoking questions about how the company will navigate government regulation and oversight, existing government-backed currencies, criminal use and privacy.
On Monday afternoon, U.S. Treasury Secretary Steven Mnuchin said in a White House briefing that criminal misuse of cryptocurrency is a “national security issue.”
“We will not allow digital asset service providers to operate in the shadows and will not tolerate the use of the cryptocurrencies in support of illicit activities,” Mnuchin said.
Last week, Federal Reserve Chairman Jerome Powell told Congress that Libra raises “serious concerns.”
Mnuchin, who said he had spoken with Powell, said he has brought the issue to the Financial Stability Oversight Council, a consortium of regulators, and that he would be reviewing the matter with international regulators as well.
Marcus is scheduled to testify before the House Committee on Financial Services on Wednesday. Earlier this month, the committee’s Democrats sent a letter to Facebook requesting a halt to the launch of Libra and Calibra, a Facebook subsidiary that would oversee the cryptocurrency, until further review.
“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” the letter reads. “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.”
Mnuchin said he would not necessarily promise to block Facebook’s initiative but added that regulators weren’t satisfied with details so far. “They have a lot of work to do to convince us,” Mnuchin said.
Last week, President Donald Trump tweeted that he is not a supporter of cryptocurrencies like Libra. “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks,” Trump tweeted.
Marcus plans to address these concerns in his testimony to the Senate Banking Committee on Tuesday.
In prepared remarks, Marcus said the Libra Association will support the monitoring and enforcement of financial crimes such as money laundering and terrorism financing by giving law enforcement and regulators access to activity. He said he agreed with Powell that Libra needs a patient and thorough review process.
“The time between now and launch is designed to be an open process and subject to regulatory oversight and review,” Marcus said in the remarks. “And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
He said the Libra Association will work with regulators and policymakers to ensure that blockchain technology is legally compliant, transparent and consumer-friendly. The Swiss Financial Markets Supervisory Authority will supervise the association, as it is headquartered in Geneva, and it will also be registered as a money services business with the Financial Crimes Enforcement Network of the U.S. Treasury Department.
Libra doesn’t plan on getting in the way of central banks in regard to monetary policy, Marcus said. Instead, the Libra Reserve, which will hold currencies including the U.S. dollar, the British pound, the euro and the Japanese yen in assets such as cash bank deposits and short-term government securities, will back the cryptocurrency.
“The Libra Association, which will manage the reserve, has no intention of competing with any sovereign currencies or entering the monetary policy arena,” he said in his remarks. “It will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy.”
Protecting customer privacy, he said, is a top priority for the association, which will be regulated by the Swiss Federal Data Protection and Information Commissioner.
“Privacy on the Libra Blockchain will be similar to existing blockchains; transactions include only the sender and receiver’s public addresses, the transaction amount, and the timestamp,” Marcus said in his remarks. “The association will not separately hold any personal data on people who use the blockchain, no matter how it otherwise could be collected, and will not run any infrastructure.”
Marcus also clarified information regarding Calibra, the subsidiary that will use the Libra Blockchain to provide financial services, for which he is the chief executive. Its first product will be a digital wallet for Libra, which global users – especially those who are unbanked or underbanked – can access on a stand-alone app, Facebook Messenger and WhatsApp, Marcus said.
“Calibra customers’ account and financial information will not be shared with Facebook, Inc., and as a result cannot be used for ad targeting,” he said.
The Federal Trade Commission and the Consumer Financial Protection Bureau will monitor Calibra for consumer protection as well as data privacy and security, and state financial regulators will regulate Calibra as a money transmitter, Marcus said in his remarks.
Marcus clarified that Libra will function like cash, not an investment.
“We have done a lot to democratize free, unlimited communications for billions of people,” he said. “We want to help do the same for digital currency and financial services, but with one key difference: We will relinquish control over the network and currency we have helped create.”
(c) 2019, The Washington Post · Hannah Denham