U.S. Federal Reserve Chairman Jerome Powell said on Wednesday that Facebook’s planned digital currency Libra ‘cannot go forward’ until serious concerns were addressed, piling further pressure on the controversial project.
‘Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,’ Powell said during his semi-annual testimony on monetary policy before the U.S. House of Representatives Financial Services Committee.
‘I don’t think the project can go forward’ without addressing those concerns, he added later in the hearing.
Powell said that Libra could be used for untraceable terrorist financing, and could also threatened global financial stability given that Facebook’s huge user base may result in Libra’s wide adoption.
U.S. Federal Reserve Chairman Jerome Powell said on Wednesday that Facebook’s planned digital currency Libra ‘cannot go forward’ until serious concerns were addressed
Policymakers globally have expressed serious concerns about the proposed cryptocurrency, but the strong comments from the most powerful U.S. financial regulator further underscores the growing regulatory hurdles for the project.
Powell said any regulatory review of the recently announced project should be ‘patient and careful,’ while acknowledging digital currencies do not fit cleanly within existing rules.
‘It’s something that doesn’t fit neatly or easily within our regulatory scheme but it does have potentially systemic scale,’ he said. ‘It needs a careful look, so I strongly believe we all need to be taking our time with this.’
‘We are very much aligned with the Chairman around the need for public discourse on this,’ Facebook spokeswoman Elka Looks said in an email. ‘This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback.’
Powell’s stern tone about Libra and his insistence that it cannot move forward unless regulators´ concerns are addressed knocked the price of bitcoin, the original cryptocurrency, sharply lower.
Facebook CEO Mark Zuckerberg is seen last year. Policymakers globally have expressed serious concerns about Facebook’s proposed cryptocurrency
Bitcoin fell as much as 7 percent over the course of Powell´s three hours of testimony.
Since Facebook revealed its plans to launch Libra on June 18, a move seen as adding legitimacy to the crypto market, Bitcoin has rallied by more than 30 percent, climbing back to near $14,000 late last month. By mid-afternoon on Wednesday it was trading at $12,268.99, down 2.4 percent on the day.
Facebook shares, too, took a bit of a hit during Powell´s appearance before the committee, although they largely recovered that lost ground and were trading 1.3% higher at $201.89 a share.
It is unclear exactly how the Fed could slow the project if it wanted, given the murky regulatory treatment of digital currencies, but Powell’s perspective looms large.
Facebook officials are scheduled to testify about the project later this month in Congress, where senior lawmakers have raised data privacy and other concerns.
Since Facebook revealed its plans to launch Libra on June 18, a move seen as adding legitimacy to the crypto market, Bitcoin has rallied by more than 30 percent
Powell said the Fed has established a working group to follow the project and is coordinating with other central banks across the globe.
He also expects the U.S. Financial Stability Oversight Council, a panel of regulators charged with identifying broad risks to the financial system, will also review the idea.
Powell noted that he supports financial innovation as long as appropriate risks are identified, but he said the massive platform enjoyed by Facebook immediately sets Libra apart from other digital currency projects.
‘Facebook has a couple billion-plus users, so I think you have for the first time the possibility of very broad adoption,’ he said.
Any problems that could emerge through Libra ‘would arise to systemically important levels just because of the mere size of Facebook.’
WHAT DO WE KNOW ABOUT FACEBOOK’S LIBRA CURRENCY?
What is Libra?
Libra is the name of the new cryptocurrency Facebook is backing which will launch in 2020, and once in circulation will be used to buy service digitally from a user’s smartphone.
The digital currency will be stored in a digital wallet called Calibra, a standalone app on a user’s smartphone or housed within Facebook-owned services such as WhatsApp and Messenger.
It has been backed by Visa and Mastercard, as well as businesses such as Uber, Spotify and eBay meaning eventually users will be able to use the currency to pay for almost anything from their weekly shopping to an Uber journey or their Spotify subscription.
How does cryptocurrency work?
Cryptocurrencies are entirely digital forms of money which use encryption to carry out transactions securely and in many cases anonymously between two parties, which many argue make it more secure against fraud.
A key benefit of cryptocurrency is also that they are decentralised, meaning that no one entity controls the currency in contrast to how a central bank controls traditional currency.
The currencies are often built on blockchain networks, a type of digital ledger technology where all transactions are publicly verified and recorded and can not be altered – creating a chain of information and improving transparency.
How is Facebook’s different?
The two biggest issues for cryptocurrency so far, Facebook argues, have been scalability and volatility. Bitcoin, for example, has seen its price fluctuate violently in recent years as its price is linked to supply and demand.
However, Libra is to be backed by a reserve of assets – including linking it to several international currencies – from a number of central banks in order to keep its pricing stable.
The developers have said that launching it through Facebook apps will also make it immediately accessible to more than two billion people globally – the number who use a Facebook app each month.
How can users buy Libra?
When the Calibra wallet for Libra launches, those wishing to use it will need to sign up for an account using a government-issued ID.
Users will then be able to convert their money into Libra and add it to their digital wallet. Once in place, the currency can be used to pay for “everyday transactions, like buying a coffee, buying groceries, or taking public transportation”.
Facebook said initially the new payment system will support peer-to-peer payments between individuals, as well as some other ways to pay for goods and services – for example by scanning a QR code.
The system will eventually be expanded to include integration into point-of-sale systems in stores, which would allow in-store payments that would work in a similar fashion to paying with a debit or credit card or using contactless.
Because it will also be built into WhatsApp and Facebook Messenger, users will also be able to send and receive money between their friends and families just by sending them a message.
This will also work with any businesses they interact with on those platforms, Facebook said.
When will it be available?
Still being finalised in its development, the full system of Libra and its Calibra digital wallet is expected to launch next year.