Facebook Inc’s ambitious plan to create a financial ecosystem based on a digital currency faces questions from US lawmakers this week, as it is shadowed by negative comments from US President Donald Trump, his Treasury secretary and the head of the Federal Reserve.
Congress yesterday began two days of hearings on the currency planned by Facebook, to be called Libra, starting with the Senate Banking Committee.
Meanwhile, a US House of Representatives Judiciary subcommittee was to extend its bipartisan investigation of the market power of Facebook, Google, Amazon.com and Apple Inc.
Facebook must meet “a very high standard” before it moves ahead with its planned digital currency, US Secretary of the Treasury Steven Mnuchin said on Monday.
US regulators have already expressed concerns to Facebook about the plan for a global cryptocurrency, noting that these kinds of virtual coins have been associated with money laundering and illicit activities, Mnuchin said.
“Whether they’re banks or non-banks, they’re under the same regulatory environment,” Mnuchin told reporters at the White House, adding that Facebook “will have to have a very high standard before they have access to the financial system.”
Facebook last month unveiled its plans for Libra, widely regarded as a challenger to dominant global player bitcoin.
Expected to launch in the first half of next year, Libra is designed to be backed by a basket of currency assets to avoid the wild swings of bitcoin and other cryptocurrencies.
Mnuchin said the US Treasury welcomes “responsible innovations” that can improve the efficiency of the financial system, but added: “Our overriding goal is to maintain the integrity of the financial system and protect it from abuse.”
He said US regulators have met with Facebook officials on this question, and how Facebook can protect against the new virtual coin being used for criminal activity.
“This is indeed a national security issue,” he said.
Facebook must implement safeguards against the use of Libra for money laundering and terrorist financing and comply with other financial regulation, he added.
Commenting on Facebook’s claim that Libra could lower costs and help people without access to traditional financial services, he said: “That’s fine [but] they’ve got a lot of work to do to convince us they can get to that place.”
Mnuchin’s comments echoed concerns voiced by US Federal Reserve Chairman Jerome Powell and regulators around the world.
David Marcus, who heads Facebook’s digital wallet and blockchain efforts, said in testimony prepared for delivery to the Senate Banking Committee yesterday that he expects regulators to carry out an extensive review of the Libra project.
“The time between now and launch is designed to be an open process and subject to regulatory oversight and review,” Marcus was to say in his remarks, which were released by the committee.
“We know we need to take the time to get this right. And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals,” he was to say.
Marcus said that Libra, whose association is to be based in Geneva, Switzerland, would be supervised by the Swiss Financial Markets Supervisory Authority, but would also register with the US Treasury’s FinCEN (Financial Crimes Enforcement Network) to comply with anti-money laundering regulations.
Facebook “will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy,” Marcus added.
The companies behind Libra include Visa Inc, MasterCard Inc and PayPal Holdings Inc, as well as ride-hailing apps Lyft Inc and Uber Technologies Inc.
Facebook has created a “digital wallet” subsidiary, Calibra, to work on the technology, separately from its main social media business.
While Facebook owns and controls Calibra, it will not see financial data from it, the company says.
Trump last week tweeted that the new currency, Libra, “will have little standing or dependability.”
US Representative Maxine Waters, head of the House Financial Services Committee, which is holding today’s hearing, called on Facebook to suspend the plan until Congress and regulators could review it.
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