Since the announcement of Libra, members of Congress have been increasingly vocal with their concerns. Last week’s congressional hearings which included Calibra head David Marcus, consisted of two days of gaining significant insight into what officials were worried most about with Facebook’s Libra. Some Congress members have stated that Libra poses a threat to United States’ national security and monetary policy. While that fear may be plausible, ultimately, the government ‘s biggest problems with Libra revolve around trust and understanding.
Zero Trust in Facebook:
“The distrust of Facebook is pretty universal … I wish we could trust Facebook, it is pretty clear there is nobody on this committee that does,” – Senator Sherrod Brown
It has been no secret and the hearings just made it more clear that Facebook is not trusted. The privacy issues discovered in the Cambridge Analytica scandal had a lot to do with that. If Libra truly intends to follow regulatory guidelines, they will in all likelihood be tasked with strict Anti-Money Laundering and Know Your Customer regulations (AML/KYC). This would require the large scale collection of extremely private and sensitive user information. Facebook and the collection of more data is definitely going to raise concerns that the information collected will be used by Facebook for ulterior purposes. The counter argument to this is that Calibra was created as a separate subsidiary company of Facebook and in his testimony, David Marcus stated that they will not be sharing the collected information with Facebook. It will take more time for Congress to believe this.
“Facebook now wants to control the money supply – what could go wrong?” – Senator John Kennedy
Another trust issue with Facebook is of them as a growing “monopoly”. Facebook is already facing rumblings that it is becoming too monopolistic. Imagine Facebook entering into another sector (finance) and begins issuing its own currency reaching its user base of over 2 billion active users. Then imagine the strength of Facebook if the adoption and use of Libra results in a devaluation of the U.S. Dollar. If Facebook is thought of as a monopoly now, just wait until then. Government officials have certainly already imagined both scenarios and do not want to risk taking a wait and see approach to that contemplated outcome.
Libra as a Threat to National Security:
“Facebook is apparently trying to create a new global financial system that is intended to rival the U.S. dollar…this venture is slated to be based in Switzerland, which has a history as a monetary haven for criminals and shady corporations. Facebook’s plans raise serious privacy, trading, national security, and monetary policy concerns…” – Chairwoman Maxine Waters
As mentioned above, a lot of the concerns voiced by Congress officials can be filed under the label of “national security”. Financial crimes, money laundering and the development of terrorist cells and criminal enterprises often involve transacting in cash (of varying fiat currencies). Cash has always been key because of the extreme improbability in tracking its movement. Transfers of cryptocurrencies like Bitcoin in particular, can be tracked but, because of its pseudonymous nature, is very difficult to link a transfer to anyone who does not want to be personally identified. What makes it an even more attractive alternative to cash is its ease in making borderless transfers while maintaining a pseudonymous identity. Government fear is that a new cryptocurrency such a Libra coin that has the potential to be adapted by billions can give these types of criminal organizations another stronger and more efficient alternative to cash.
Another potential national security concern is political leverage over foreign countries. A great way of applying political pressure on other countries is via economic sanctions. Some reports allege that countries have been exploring turning to cryptocurrencies as a way to avoid these sanctions. They can do this by using cryptocurrencies for various types of international payment transfers. Some countries may already be doing this. Whether or not this concern is valid, it is a real and growing concern.
Like many Blockchain Built technologies, with Libra it all starts with education and understanding. Members of Congress are still not clear as to exactly what Libra is creating. Truth be told, Facebook may not yet know exactly what they are creating. Are they creating an entirely new financial institution, a tokenized mutual fund, an ETF or just a simple stable cryptocurrency? Will they be acting as an exchange or money transmitter? These are extremely important questions for Congress to have determined because it will guide Libra’s regulatory oversight. David Marcus was even asked directly which regulatory agencies he thinks should oversee and regulate Libra. He did not advise.
“We approach all of these efforts with humility and a commitment to engage with experts in law, finance, economics, security, compliance, and blockchain technology, as well as with the regulators and policymakers who oversee the stability and security of our financial systems.” – David Marcus
Libra has received congressional feedback loud and clear, and things are just getting warmed up between the two sides. We will have to wait and see if and how congress acts ahead of Libra’s release and also how true Libra stays to their promise to work with Congress to issue a completely compliant cryptocurrency.