Facebook's Libra has almost immediately run into resistance from Washington. Photo / Getty Images
Facebook's Libra has almost immediately run into resistance from Washington. Photo / Getty Images
Lawmakers made it clear at a Senate Banking Committee hearing Tuesday that they believe the biggest roadblock to Facebook's plan to enter the world of cryptocurrency and global finance is the company's reputation.
Facebook's cryptocurrency project, Libra, has been in the works for more than a year. It has anambitious goal: to offer an alternative financial system that makes it possible to send money around the world with few fees.
But almost immediately, the company has run into resistance from Washington.
"Facebook is dangerous," Sen. Sherrod Brown, D-Ohio, said at the hearing. "Facebook has said 'just trust us.' And every time Americans trust you, they seem to get burned."
The initiative is far from the first effort of its kind. The best-known cryptocurrency, Bitcoin, is in wide circulation, and it introduced the idea of digital currencies that are free from government control.
But the Libra effort has put a spotlight on cryptocurrencies and amplified the voices of critics who say the technology has little value beyond speculative investing and illegal transactions, like online drug sales.
When Facebook announced Libra in June, it also faced immediate skepticism from people who are wary of the power the social media company has already accumulated. Within days, regulators in Washington were calling for hearings on Facebook's plans.
That concern was obvious Tuesday when members of the committee questioned David Marcus, who leads the company's cryptocurrency initiative, for more than two hours. Marcus was asked about a range of Facebook controversies, from lax protection of the private information of its users to Russian disinformation on Facebook's platforms to claims that it tries to muzzle conservative viewpoints.
"Why in the world should Facebook of all companies do this?" asked Sen. Brian Schatz, D-Hawaii. "Maybe before you do a new thing you should make sure you have your own shop fixed."
Marcus, adopting a conciliatory tone, said the company would do its best to fight fraud and to earn back the trust of the more than 2 billion people who use Facebook's services regularly.
Facebook CEO Mark Zuckerberg. Photo / AP
"We've made mistakes in the past," Marcus said. "We have been working, and are working hard to get better."
The Senate session was the first in a day of Capitol Hill hearings involving the technology industry. House lawmakers were set to question multiple tech executives at an afternoon hearing focused on competition issues as part of a broad antitrust inquiry. And Google executives were scheduled to face questions at another hearing on the subject of whether the company censors conservative voices.
Facebook executives will also have to answer more questions about the company's cryptocurrency plans in a House Financial Services Committee hearing Wednesday.
Some lawmakers and regulators — most notably at the Securities and Exchange Commission — have been raising concerns about the legality and usefulness of cryptocurrencies for some time.
The involvement of Facebook, which has faced an onslaught of controversy over the past two years and is expected to pay a US$5 billion ($7.4b) settlement with the Federal Trade Commission, has put a charge into those discussions.
Last week, the chair of the Federal Reserve, Jerome Powell, said Libra raised "serious concerns" around "money laundering, consumer protection and financial stability."
"I just think it cannot go forward without there being broad satisfaction with the way the company has addressed money laundering" and other issues, Powell said as he testified before the House Financial Services Committee. Central bankers from Britain, China, France, Singapore and the European Central Bank have all voiced similar concerns.
President Donald Trump also criticised Libra and Bitcoin, writing on Twitter last week that the digital tokens were "highly volatile and based on thin air."
And at a news conference on Monday afternoon, Treasury Secretary Steven Mnuchin also raised questions about Libra and other cryptocurrencies. Facebook has "a lot of work to do before we get to the point where we're comfortable with it," Mnuchin told reporters.
The issue provides a rare instance when the Trump administration is lining up with Democrats rather than other Republicans. While Democrats on the Senate Banking Committee lashed into Facebook, several Republicans on the committee voiced support for Facebook and its new initiative.
"I just think we should be exploring this and considering the benefits as well as the risks," said Patrick Toomey, R-Pa. "To announce in advance that we have to strangle this baby in the crib seems wildly premature."
But not all Republicans on the committee were so positive.
Martha McSally, R-Ariz., said, "I don't trust you guys."
And Tom Cotton, R-Ark., worried that conservatives would not be treated fairly in the Libra system, echoing a frequent Republican talking point about the liberal bias of tech companies.
President Donald Trump has also criticised Libra and Bitcoin. Photo / AP
Marcus, a former PayPal executive, was hand-picked by Mark Zuckerberg, Facebook's chief executive, to lead the Libra effort.
Facebook's role in the project will be run through a subsidiary company called Calibra, led by Marcus and other top Facebook employees. If the Libra digital token become popular, Calibra could build a business around offering customer financial services, including loans and other actions traditionally offered by the banking industry.
A separate entity called the Libra Association, whose proposed board would include more than a dozen partners in the tech and financial industries, would manage the cryptocurrency system once it is up and running, which Facebook is hoping to do next year.
Brown asked if there was any amount of opposition that would convince Facebook to scrap Libra.
"Is there anything that elected leaders can say that will convince you and Facebook that it should not launch this currency?" he said.
Marcus said that the company would not move ahead with the project until the concerns of regulators are answered.
