By Dave Michaels and Paul Vigna
WASHINGTON -- Facebook Inc. was questioned by senators who said
they don't trust the social-media giant to operate a global
cryptocurrency. But its main challenge will be overcoming
skepticism from global regulators and how to apply decades-old
conventions on the oversight of money.
Facebook has said its digital coin, known as Libra, won't be an
investment vehicle and that the company and its partners have no
plans to act like a central bank. Both points, made at a Senate
hearing Tuesday and in private meetings with government officials,
are meant to tamp down concerns about the social-media company's
sweeping cryptocurrency ambitions.
"We don't actually have a regulatory framework that sufficiently
addresses the cash market for digital assets that aren't
securities, like bitcoin," Timothy Massad, former chairman of the
Commodity Futures Trading Commission, said in an interview. "We
don't have a comprehensive way of looking at it."
Libra could be the spur that changes that. The Federal Reserve
Board, which once said it had no authority over bitcoin, has
suggested in recent weeks that Libra comes with "serious concerns"
including financial stability.
The Financial Stability Oversight Council, an umbrella group of
regulators that includes the Fed, has formed a working group to
discuss oversight of digital assets, Treasury Secretary Steven
Mnuchin said Monday. Similar efforts are under way within the Group
of Seven industrialized nations to debate whether a global
cryptocurrency could inflame financial markets.
Facebook and its partners are conferring with all of those
agencies and won't move forward with Libra until it has "fully
addressed regulatory concerns and received appropriate approvals,"
Facebook executive David Marcus told the Senate Banking Committee
on Tuesday. Consumers could send the digital coins to one another
or use them to make purchases both on Facebook and across the
internet.
Yet it isn't clear which approvals Libra needs, beyond certain
state and federal licenses for transmitting money. Those regimes
guard against the risk of money laundering and other illicit
finance; they have little to do with how an asset trades or how to
guard against the risk of a run on the asset.
"Libra is based on a relatively new and continually evolving
technology in which it is not entirely clear how existing laws and
regulations apply," Senate Banking Chairman Mike Crapo (R., Idaho)
said at the Tuesday hearing.
For Facebook, the hearing in part showed the toll of a series of
missteps and scandals over the past several years that have dented
the company's reputation and driven a change in strategy.
The social-media giant is still hugely profitable, and around
2.7 billion people globally use its services each month. But Chief
Executive Mark Zuckerberg is attempting a shift toward more private
communications and ephemeral messaging.
That shift will likely force Facebook to find new sources of
revenue and growth, and the company sees Libra as a key project
that would help it move away from its reliance on targeted
advertising.
"You guys have had a rough couple of years and so the question
is why are you moving on to a new and challenging thing other than
the grandiosity of Silicon Valley, which causes you to get bored
with your own thing and try to move into a new line of business?"
Sen. Brian Schatz (D., Hawaii) asked.
Mr. Marcus sought to persuade lawmakers that Facebook won't be
in sole control of Libra once it is operational. A
Switzerland-based association that will govern Libra includes 27
other companies, including traditional financial firms such as
MasterCard Inc., and consumers will be able to choose digital
wallets to store Libra offered by other companies, Mr. Marcus
said.
"They will have plenty of choice with established companies that
have a lot of trust," Mr. Marcus said.
Relatively few questions at the Senate hearing probed the
regulatory minefield or whether Facebook's stated purpose for Libra
-- to make finance cheaper for the poor and "unbanked" -- will lead
it toward other activities that would stress the wall between
banking and technology.
If lower-income consumers are truly the target users for Libra,
for instance, its backers could find that making short-term loans
is necessary.
"And if you do things like that, shouldn't you be regulated as a
bank? Shouldn't you be subject to all the same consumer-protection
measures and financial-stability regulations that we impose on
banks?" said Mr. Massad, now a senior fellow at Harvard
University's Kennedy School of Government.
Mr. Marcus is likely to hear the same tough questioning on
Wednesday, when he goes before the House Financial Services
Committee. That panel's staff has circulated an idea for
legislation that would keep Facebook out of banking or creating
digital assets.
Ultimately, though, new laws aren't likely, said Jerry Brito,
the executive director of Washington-based research firm Coin
Center. If Libra doesn't work under existing laws, he said, then
Facebook and its partners are likely to adapt.
Hester Peirce, a Republican member of the Securities and
Exchange Commission who has spoken optimistically about the
potential for cryptocurrencies, said she hopes Facebook's plans get
a fair hearing. "It contains some of the aspirational vision that
is possible for cryptocurrency," Ms. Peirce said at a conference in
Aspen, Colo.
--Heather Somerville contributed to this article.
Write to Dave Michaels at dave.michaels@wsj.com and Paul Vigna
at paul.vigna@wsj.com
(END) Dow Jones Newswires
July 16, 2019 18:43 ET (22:43 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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