China is moving quickly with the launch of a similar idea in the coming months. Libra is going to be backed mostly by dollars and I believe that it will extend America's financial leadership around the world, as well as our democratic values and oversight.
How could Zuckerberg persuade a largely hostile Congressional committee to give its backing for its plan to launch a digital currency? Invoking the threat that China could overtake US technology seemed like a good idea, with Zuckerberg pointing to China's plans to launch a similar project — a public-private partnership with some of the country's biggest companies — in the next few months.
Nevertheless, the defence failed to persuade many politicians. "I think you'll be hard pressed to find somebody who's more of a hawk on China in this committee," said Anthony Gonzalez, a Republican member from Ohio. "But this isn't Mark Zuckerberg versus Xi Jinping."
Other controversies
I'm sure there are a lot of people who wish this was anyone but Facebook putting this forward.
Early on, Zuckerberg accepted that there were a number of other political "issues" facing his company, and that it might not be the best advocate for such a bold new plan.
Indeed, at times it seemed like members were keen to talk about anything but Libra. Misleading political advertising, staff diversity, suppressing the views of people who are anti-vaccination, even deep fakes — almost every topic the company deals with was raised at one point or another.
But of particular interest to Democrats was the recent controversies about false content on Facebook. One of Zuckerberg's more uncomfortable moments came when he struggled to explain to Alexandria Ocasio-Cortez, the Democratic congresswoman from New York, why Facebook used The Daily Caller, a rightwing news and opinion website, as one of its fact-checking organisations.
Reserve compromise
I think that there's already some discussion about whether it might make sense to build the kind of digital payment system that we're talking about, based on individual sovereign currencies.
Zuckerberg signalled the group was more flexible than initially indicated about the make-up of the Libra reserve — initially pitched as a basket of currencies, including the dollar, the British pound, the euro, the yen and the Singaporean dollar.
For one, he conceded that it would be "completely reasonable" for US regulators to restrict the currency to being backed "primarily" by US dollars.
But he also raised the possibility of creating a set of different Libra coins that would each be backed — presumably one for one — by different individual currencies. This might be more acceptable to regulators; for example, the New York State Department of Financial Services has previously approved the launch of so-called stablecoins in this format. But it could lump Libra and users looking to convert currencies with additional costs.
Anti-money laundering
We are certainly looking at whether there are elements of the [anti-money laundering] and [know your customer] regulations that can be encoded at the network level and not just at the level of the individual wallets or payment companies involved.
Fears that the Libra payments system could enable illicit activities such as money laundering and terrorism financing have dogged Facebook from the outset, and could prove a major hurdle to regulatory approval.
Zuckerberg at one point passed over responsibility for this to the Libra Association, but promised that Facebook's Calibra digital wallet would have a "strong identity", meaning users would be required to provide personal identification in order to use it.
But he also suggested for the first time that the underlying Libra blockchain could also have ways of monitoring for criminal activity built into it, which would please law enforcement, but possibly limit its scope and irk crypto enthusiasts keen for the project to remain without this type of control or oversight of the system.
Location
If you're trying to build a global payment system, I think that there is some value in housing the independent association in the country and in the place where a lot of the world's international institutions are based.
A regular complaint from members of the committee was that the Libra Association is being set up in Switzerland, which Juan Vargas, a Democratic congressman from California, called the "grandfather of the world's secretive tax havens".
Zuckerberg would not commit to bringing the association back to the US, a congressional demand, stressing again that it is independent. But he did say the project would "follow US rules".
Written by: Hannah Murphy and Kiran Stacey
© Financial Times
