Facebook’s Libra project continues to generate heat among legislators and policymakers.
Testifying before the House Financial Services Committee this morning, Federal Reserve Chairman Jerome Powell said the project raised “serious concerns regarding privacy, money laundering, consumer protection and financial stability.” He said the project cannot be allowed to go forward until further details about it are released.
Facebook announced Libra, a blockchain and cryptocurrency, with a stated aim of providing services to the unbanked population in developing countries. The blockchain is permissioned, meaning that not anyone can run a node on the chain, and is controlled by the Libra Association, a Switzerland-based non-profit, whose council members consist of top-tier venture capital firms, non-profits, and two of the biggest payment processors.
Powell told the committee that cryptocurrencies don’t fit “neatly or easily” within the regulatory system. But the systemic scale possible with their use makes them useful. “It needs a careful look, so I strongly believe we all need to be taking our time with this,” he said.
For its part, Facebook said it agreed with Powell’s assessment. Facebook spokeswoman Elka Looks told Reuters that there was a need for “public discourse” on the merits or demerits of Libra. “This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback,” she said.
Libra Chief Responds to Regulators
In a related development, David Marcus, head of Libra at Facebook, responded to regulator concerns about the project. He gave them his “personal assurance” that he was “taking the time to do this right.” Congressional representatives had sent a letter to Facebook asking it “to cease work” on the project until Congress had “an opportunity to examine these issues and take action”. The representatives cautioned against designing a “new financial system that is too big to fail.”
He also addressed concerns around privacy, a topic which has become Facebook’s nemesis. “Similar to existing and widespread cryptocurrencies such as Ethereum and Bitcoin, transactions that take place directly on the Libra Blockchain are ‘pseudonymous,’ meaning that the user’s identity is not publicly visible,” Marcus wrote in his response. He also reiterated the responsibility of third-party developers to comply with existing AML and KYC regulations on the blockchain. “It will be the responsibility of these providers to determine the type of information they may require from their customers and to comply with regulations and standards in the countries in which they operate,” stated Marcus. Libra is envisioned to be an open-source system on which developers can create an array of blockchain-based services, such as wallets.
Facebook has plans to develop a wallet, called Calibra, for the project. Marcus stated that Calibra account information will not be used to improve ad targeting across Facebook’s family of products. He also said regulators and other digital wallet services will cooperate with law enforcement and regulatory agencies to collect information about the identity and activities of their users. Marcus also told regulators that the company stores “non-public personal financial information” in the form of credit and debit card details for users who’ve used financial services on the platform.
“The Libra Association will work with policymakers and regulators to make sure this new ecosystem is a value-add to economies, that consumers are protected, and that the role of government oversight and central banks is appropriate. The Association is fully committed to advancing the global dialogue on how blockchain and cryptoassets should be regulated,” he wrote.