There was no love lost for Facebook’s Libra on the second day it was presented before lawmakers. David Marcus, head of Libra, was again the main witness at the House Banking and Finance Committee’s hearing to evaluate the impact of Facebook’s proposed cryptocurrency on consumers and the financial system.
A Different And Similar Hearing
But there was a key difference between yesterday’s hearing, when senators came out with guns blazing against the coin and Facebook, and today’s discussion. Even as they decried Facebook and attempted to corner Marcus into making commitments about Libra, lawmakers today were also interested in understanding more about the proposed coin’s workings.
Their knowledge of the venture showed up in the colorful descriptions they employed to describe it. Rep. Bill Huizenga (R-MI) compared Libra to a platypus, an animal whose appearance is a cross between that of a duck and a beaver, because of the ambiguity about whether the coin is a security token or an ETF. Rep. Jim Himes (D-CT) said Libra represented a “complete overhaul of circulatory system of the global economy.”
The descriptions apart, Congressional members had clearly done their homework. Their questions about Libra ranged from its impact on social policy to the composition of the Libra Association and workings of its code and cybersecurity vulnerabilities.
Rep. Sean Puffy (R – WI) brought up the specter of Libra dictating social policy by allowing commerce only between groups that subscribed to its political philosophy. “Will a law-abiding gun dealer use Libra to purchase guns?” he asked, referencing Facebook’s ban on gun sales on its platforms. The future, in his projection, was one where everyone was forced to conform to Facebook’s standard. Rep. Himes wanted to know more about Libra’s plans to satisfactorily inform consumers about foreign currency risk while Rep. Bill Foster (D-Ill) discussed the cybersecurity violations that might result, if a proper review of code from external apps by developers was not included into the system.
But there was still frustratingly little detail or a clear pathway for the future forthcoming from Marcus. For the most part, he stuck to espousing the official line about helping the underbanked and unbanked using Libra.
A Call for More Accountability and Regulation
A panel of witnesses who appeared after David Marcus had more to say about Libra.
“The Libra Whitepaper is peppered with big promises and few details. And the project involves risk to purchasers and, at least, to the financial system that are not disclosed,” said Chris Brummer, professor of law at Georgetown Law School and added the whitepaper was an attempt to “condition the market for a product that Facebook intends to sell to billions of people all over the world.” The purposeful omissions of risks by Facebook could lead to a distorted playing field where the common man using Libra would be at a disadvantage as compared to those controlling its reserves, he said.
Gary Gensler, who was formerly chair of CFTC, called for regulation of Libra Reserves by the SEC and Congress. According to him, the Libra Association is designed as an ETF intended to benefit its members. Katharina Pistor, professor of Comparative Law at Columbia Law School, pointed out that insolvency of Libra Reserves and a run on the coin would leave lay users high and dry because they would have little to no recourse for claims. The Libra Association, a grouping of 100 members that is expected to control the levers governing Libra, also came in for criticism from here. “This concentration of power is unmatched by any meaningful accountability to anyone,” she said, adding that their choice of legal structure meant that they would not be accountable to anyone including Libra users.
An Evasion to Commitment
But it seems unlikely that the Congressional grilling will stop Facebook in its tracks. Rep. Maxine Waters (D-Cal) had earlier asked Facebook for a moratorium on Libra until Congress fully grappled its regulatory implications. She repeated the demand today but Marcus evaded a clear answer. “We will get it right,” he told here. Rep. Carolyn Maloney (D-NY) pressed him to commit to a perform a pilot project of one million Libra users overseen by the Federal Reserve and the SEC before a formal launch. Marcus hedged again and said they would continue to engage with regulators and G-7 and “launch responsibly.”