Powell Warns on Digital Currency -- WSJ

Date : 07/12/2019 @ 7:02AM
Source : Dow Jones News
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Powell Warns on Digital Currency -- WSJ

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By Paul Kiernan 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 12, 2019).

WASHINGTON -- Federal Reserve Chairman Jerome Powell and legislators in both parties expressed broad concern about Facebook Inc.'s plan to create a cryptocurrency-based payment network, underscoring the intense legislative and regulatory scrutiny the project could face.

Mr. Powell, speaking to the Senate Banking Committee on Thursday, expressed doubt about the feasibility of launching the digital coin, dubbed Libra, on the timeline Facebook has targeted.

"I think we agree that Libra raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability," he said. "Those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds."

Mr. Powell, in a second day of testimony on Capitol Hill, signaled again that the Fed could cut interest rates this month to bolster the U.S. economy, as it faces risks from slowing global growth and uncertainty about trade disputes.

"The bottom line is, the economy is in a very good place, and we want to use our tools to keep it there," Mr. Powell said in testimony that largely echoed his remarks Wednesday before the House Financial Services Committee. Investors have interpreted such language to mean the central bank will lower rates at its next policy meeting July 30-31.

Senators spent much of the time asking Mr. Powell about Libra, a cryptocurrency planned by Facebook and more than two dozen other companies. The coin will be pegged to a basket of government-issued currencies, and users could send it to each other electronically and use it to make purchases on Facebook and across the internet.

The Senate Banking Committee and House Financial Services Committee are set to hold hearings on the initiative Tuesday and Wednesday. Mr. Powell said the Fed has a group of staffers looking at Libra's implications.

"The idea that this would be going into implementation within 12 months, I think, is not going to be proven right," he said. "I think we're going to take more time than that."

Economists say Libra has more potential to disrupt global finance than earlier cryptocurrencies, which failed to gain traction at the retail level and experienced huge swings in value, making them unattractive alternatives to government-issued money. Libra could be different, in part because Facebook's 1.56 billion daily users gives it the potential for widespread adoption.

But that same characteristic also would elevate the need for regulatory oversight, Mr. Powell said.

"The size of Facebook's network means it could be, essentially, immediately systemically important," Mr. Powell said Thursday. "This should be subject to the highest level, the highest expectations in terms of privacy but also prudential regulation."

Facebook has acknowledged as much. In a note this month, the Libra project's leader, David Marcus, said the company is committed to "a collaborative process with regulators, central banks and lawmakers."

"If this is not done right, it could definitely present systemic risks no one wants," said Mr. Marcus, who is slated to testify Tuesday at the Senate hearing.

A Facebook spokeswoman, in an emailed statement, pointed to Mr. Powell's remark Thursday that "everyone wants to start from the proposition that they want innovation to occur." She said the company is aligned with the Fed chairman around the need for public discourse and not moving too quickly.

Leaders of the congressional committees that oversee financial regulation expressed skepticism about the project, however.

Sen. Sherrod Brown (D, Ohio), the top Democrat on the Senate Banking Committee, said Thursday that Libra is an attempt by Facebook to "ape the role of government," adding that the company has gotten "carried away with their own wealth and power."

"So now, in addition to complex and risky Wall Street banks, we face new risks from nonregulated, giant tech companies armed with vast amounts of personal data with the intent, as far as I can tell, of conducting monetary policy on their own terms," Mr. Brown said.

One key issue with Libra, Mr. Powell said, is that no single, existing regulatory agency would currently have authority to oversee it. The Fed, for instance, only supervises banks, though Sheila Bair, the former chair of the Federal Deposit Insurance Corp., argued in an op-ed on Yahoo! Finance Monday that Congress should give the Fed lead authority to regulate Libra.

Senate Banking Committee Chairman Mike Crapo (R., Idaho) asked Mr. Powell if the project might call for the creation of a new regulator focused on data protection.

"I think that is exactly the question we need to be focused on," Mr. Powell said.

President Trump said on Twitter late Thursday that he isn't a fan of cryptocurrencies, saying its "value is highly volatile and based on thin air."

"Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity," he wrote. "Facebook Libra's 'virtual currency' will have little standing or dependability."

Write to Paul Kiernan at paul.kiernan@wsj.com


(END) Dow Jones Newswires

July 12, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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