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In the first of two Congressional hearings into its ambitious alternative crypto-based financial system, Facebook came in for stinging criticism from US lawmakers, reports the Financial Times. The company had hoped to blunt the barrage of disapproval it’s faced since announcing Libra last month.
David Marcus, head of Calibra, the newly launched subsidiary tasked with developing a digital wallet for the crypto, told the Senate Banking Committee that the project will not be launched until regulatory approval has been granted, saying, "We will take time to get this right," according to Bloomberg. Those efforts to mollify concerns appear to have failed, though, with Sherrod Brown, the most senior Democrat on the Senate Banking Committee, labeling the project delusional.
Here’s what it means: While lawmakers and regulators have raised concerns about cryptos, Facebook’s recent history appears to be the biggest roadblock to Libra.
- Committee members were quick to point out the series of scandals that have engulfed the company. When Facebook announced Libra, we noted that the company’s recent controversial history would be the biggest barrier to the project. And this has proved to be the case, with Sherrod Brown saying that the company’s recent record means lawmakers would be "crazy to give them a chance to experiment with people’s bank accounts; to use powerful tools they don’t understand like monetary policy," per the FT. He was just one among several members of the committee who accused the firm of flouting consumer trust. For instance, committee chairman Mike Crapo noted that Facebook’s existing troves of personal data coupled with Libra would give it a concerning amount of reach and influence, according to Bloomberg, while Republican Martha McSally said, "I don’t trust you guys," cited by the New York Times.
- Facebook also faced questions over its plans to handle regulatory concerns.Marcus was asked by Senator Menendez if the Libra association could freeze the assets of nefarious actors, like terrorists, if they were identified. This line of questioning follows similar concerns raised by US Treasury Secretary Steven Mnuchin at the start of the week, where he pointed out that Facebook and its partners would need to implement the necessary safeguards to counter terrorism financing and money laundering that banks and other financial institutions (FIs) are subject to, per Reuters. As such, while Facebook may have its work cut out when it comes to rebuilding trust, regulatory requirements pose another set of challenges that the firm will need to navigate if Libra is to launch.
The bigger picture: Facebook’s accepted that Libra won’t launch without regulatory approval — and its latest exchanges with lawmakers suggest an inevitable delay to the project’s 2020 rollout.
Facebook’s tattered reputation is evidenced by the bipartisan incredulity it received in the US. The criticism Libra has thus far received highlights how much work Facebook has to do to repair its reputation among lawmakers in the US, but also across the world — British, Chinese, and French central banks have all voiced similar concerns. And these concerns are likely to be shared by another key set of decision-makers: consumers.
As such, I (Mekebeb) think that as long as Facebook is associated with Libra, the delay to launch is inevitable. Even then, a delayed launch, as I see it, is a best-case scenario, because as the Senate Banking Committee members’ reactions to the project highlight, there’s a long way to go before they’re convinced to give Libra their approval.
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