It's not looking like it will be an easy road for Facebook in Washington with its launch of Libra, now that they've decided to move into FinTech in a year in which distrust of Facebook is at an all-time high.
The pushback is piling on ahead of a hearing Tuesday at the Senate Committee on Banking, Housing, and Urban Affairs. And while Facebook may be big enough and savvy enough to launch the first potentially broadly accessible "stablecoin," which it wants to use for easy payments via WhatsApp in developing countries and elsewhere, they may have picked a bad time given the company's current dearth of political good will.
Last week, Fed chairman Jerome Powell spoke to that same Senate committee giving his semi-annual testimony there on the U.S. economy, and he spoke soberly about how "Libra raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability," as the Wall Street Journal reported. Powell suggested that Facebook's 12-month timeline for the project is too aggressive, and that the project should be subject to the "highest expectations in terms of privacy but also prudential regulation."
Over the weekend, President Trump chimed in with his own non sequitor thoughts on cryptocurrencies, saying he was "not a fan."
....Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. 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, both National...— Donald J. Trump (@realDonaldTrump) July 12, 2019
Trump's comments were followed by a press conference Monday by Treasury Secretary Steve Mnuchin, who reiterated those concerns and added explicit concerns that he has about the possibility of Libra being used by "terrorist financiers" to move money. Mnuchin said he was not at all "comfortable" with the plan for Libra's launch, and he added, "Cryptocurrencies such as bitcoin have been exploited to support billions of dollars of illicit activity like cyber crime, tax evasion, extortion, ransomware, illicit drugs and human trafficking."
Also today, Reuters reported that there was a draft bill circulating in the House that would all but kill the project if it were to gain traction. The draft legislation, called the "Keep Big Tech Out Of Finance Act," reads in part, "A large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function." While such a bill may not gain favor with innovation-focused congresspeople, it was the clearest indication so far that Congress isn't going to rubber-stamp the project quickly or easily.
Ahead of the Tuesday hearing at the Senate, Facebook's blockchain chief and former PayPal president David Marcus shared some prepared remarks that he'll be delivering. Among the takeaways in the remarks are that Facebook wants to assure lawmakers that a) Libra and its governing entity the Libra Association will be based in Geneva and act independently from Facebook, and b) it expects to move prudently and receive plenty of oversight. "The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight," Marcus says, and he adds that the coin won't launch until the Association has "fully addressed regulatory concerns."
A sidebar from recent weeks: Among the 27 partners Facebook announced as being part of the Libra Association, possibly none of them is fully committed to the project yet. The New York Times spoke to a handful and all of them confirmed they'd signed non-binding agreements and were taking a wait-and-see approach.
As Business Insider notes, Marcus further wants to play on Senators' possible paranoia around losing ground in the crypto market to the likes of China.
"I am excited about the potential that Libra holds, and I am proud that Facebook has initiated this effort here in the United States," Marcus says. "I believe that if America does not lead innovation in the digital currency and payments area, others will. If we fail to act, we could soon see a digital currency controlled by others whose values are dramatically different."
While Facebook proper won't be running the currency — that will be done under the aegis of a company called Calibra and the independent Libra Association, composed a few dozen corporate and non-profit entities — the company's involvement in the launch is what's driving all the raised eyebrows. Facebook's poor record when it comes to consumer privacy — as evidenced in an FTC probe that just resulted Friday in a record-setting $5 billion fine that nonetheless amounts to a slap on the wrist — and with moving fast and breaking things don't sit well with politicians for good reason. And in an informal poll conducted by the SF Business Times, nearly 60 percent of consumers polled said they didn't want Facebook going anywhere near their wallets. Is it any accident that Facebook's existing, longstanding payment system through Facebook Messenger isn't very widely used?
It will be months before we know whether Facebook gets to push ahead into this new realm of business, or whether this will be another epic failure for the social networking behemoth to learn from. Marcus, for one, wants the Senate to know that if it's not Facebook now, it'll simply be some other company before long doing something similar, with potentially less secure backing and expertise.