News of the launch of Facebook cryptocurrency Libra has highlighted how the U.S. government will respond to the introduction of new digital currencies.
The Wall Street Journal is reporting that the Federal Reserve and the Senate Banking Committee will both closely scrutinize the implementation of Libra.
On Wednesday (June 20), Fed chairman Jerome Powell said that the country’s central bank has “significant input into the payments system,” which is the eCommerce system that Libra will affect. Powell also said that regulators have jurisdiction to enforce anti-money laundering regulations on business that operate within the digital sphere.
“We will wind up having quite high expectations from a sort of safety and soundness and regulatory standpoint if they do decide to go forward with something,” Mr. Powell said.
Libra is going to be a stablecoin, which means that unlike Bitcoin, it is tied to actual currency and financial companies like Uber and eBay. Facebook said the coin is meant to facilitate online payments for the unbanked population of the world.
Powell said Facebook has been in contact with the Fed about Libra, as well as other regulators across the globe.
“It’s something we’re looking at,” he said
Libra won’t, he said, displace the current currency system, or complicate monetary policy.
“I think we’re a long way from that,” he said.
It isn’t always easy for regulators to deal with cryptocurrencies, which don’t necessarily adhere to rules written before they came into existence. The Securities and Exchange Commission in the U.S. has said it has authority over digital currency it sees as securities, while separate agencies are tasked with the enforcement of anti-money-laundering laws.
Libra and its partners Mastercard, PayPal and others would be run at a subsidiary called Calibra, and work with a digital app that would serve as a wallet to send and receive money.
The Senate Banking Committee will hold a meeting in July to investigate Libra and its implications for the financial system.
Cowen & Co. analyst Jaret Seiberg said that the quick move to investigate means that “there will be significant political opposition” to Libra. “We believe the initial hearing is critical for Facebook and its digital currency expectations,” he said.