The US Senate Committee on Banking, Housing, and Urban Affairs, also known as the Senate Banking Committee, held a hearing entitled, “Examining Regulatory Frameworks for Digital Currencies and Blockchain.” A good portion of the hearing was dedicated to skepticism of Facebook’s digital currency idea, the Libra.
Mike Crapo is a Republican Senator from the State of Idaho and he chairs the Senate Banking Committee.
In his opening remarks, he noted, “A few weeks ago the head of Libra David Marcus, joined the committee to provide on update on Facebook’s proposed digital currency. During that hearing, Mr. Marcus emphasized some important points and commitments, including that, there are a number of regulators globally that are currently engaged on the Facebook project, including the Federal Reserve, FSOC, FiNCEN, Financial Conduct Authority and the G7 and more.
“Colibra, and the Libra Association will have the highest standards when it comes to data privacy and no financial data or account data that is actually collected in Colibra will actually be shared with Facebook and that the Libra association will be headquartered in Geneva, Switzerland but will still be registered with FiNCEN and have oversight by US regulators.”
Sherrod Brown is a Democratic Senator from the State of Ohio and he is the Ranking Member, or head of the minority, on the committee.
In his opening remarks, he stated, “At this committee hearing earlier this month, many of us in both parties -as you hear from the chair- voiced concerns, serious concerns, about Facebook’s plans to run its own currency out of a Swiss bank account. By and large, we mostly heard deflection and dodging, exactly what we mean when we say Facebook doesn’t understand accountability. Facebook has proven over and over through scandal after scandal that they cannot be trusted, that they just don’t care. They move fast and break things, you know minor things like our political discourse, and journalism and relationships and privacy. Now, they want to break our currency and payment systems. They want to innovate Americans right out of their hard earned paychecks.
“Look around at what happens when big corporations say they want to innovate. Before they blew up the economy in 2008, bankers were pitching an innovative new product, called sub-prime mortgages. Just like Facebook which claims its new currency will help the unbanked and underbanked, a bit of an afterthought I think as they were selling it, these mortgages were supposed to help people who never had access to credit achieve the American dream of homeownership. In reality these mortgages ripped off millions of families who ended up losing their homes. They wrecked the economy; they made the staggering inequality even worse.”
Dr. Rebecca M. Nelson is a Specialist in International Trade and Finance at the Congressional Research Service and she was one of the witnesses. During her opening remarks, she stated, ““The Libra Association, the non-profit to oversee the currency, is headquartered in Switzerland. Many of the details of how the Libra would operate remain uncertain. The Libra has raised a number of questions due to Facebook’s lack of experience in the banking sector, the size of Facebook’s network and concerns about Facebook’s handling of user data. There are also questions about who would regulate it and how.” She also noted that earlier in July 2019, G7 ministers and central bankers raised concerns about Libra.
A story in from July in Reuters noted, “Global policymakers have raised alarm over Facebook Inc’s (FB.O) plan to issue Libra, concerned that the tech giant’s ambitions for a new global cryptocurrency may weaken their control over monetary and banking policies.
“’If Libra becomes more widely used than the sovereign currency of a particular country, the effect of monetary policy may be severely undermined,’ said Hiromi Yamaoka, former head of the BOJ’s division overseeing payment and settlement systems.”
Mehrsa Baradaran is a Professor of Law at the University of California, Irvine’s School of Law; she was another witness.
During her opening remarks, she said that the underbanked and unbanked, those who digital currencies claim to serve, are not served not because of a fault of technology but faulty policy.
She said that the Federal Reserve is already mandated to provide a payment system to all.
“Specifically, one stated goal of cryptocurrencies is to establish a ‘public’ payments system available to all.1In fact, such a public payments system already exists: that is the exact mission of the Federal Reserve,” she stated in her written testimony.
Baradaran also compared the Libra to the money market which was deregulated in the 1980s.
“Similar promises and assumptions were made about the new and innovative money markets in the 1980s, which also led to their deregulation.” Baradaran said in her written statement. “Money markets were essentially pegged to the dollar 1:1 (similar to Libra’s strategy) and promised to be stable and liquid. It was said that they did not need to be insured by the FDIC because they were not susceptible to a run. And they were safe, until they broke the buck by three cents, threatening a potentially catastrophic run.”
