It may be a bit ironic that the halls of Congress are known, colloquially, as the Hill. It’s an upward climb, after all, for Facebook — specifically for Libra.
On Wednesday (Oct. 23), Facebook Chairman Mark Zuckerberg appeared before the U.S. House Committee on Financial Services to both promote and defend Libra, the would-be cryptocurrency backed by Facebook and the Libra Association. He immediately faced lawmaker skepticism over a range of Libra’s stated ambitions.
Those ambitions, of course, include the goal of bringing financial services to more than 1 billion individuals across the world, known as the unbanked or underbanked.
Zuckerberg said in his opening remarks that those who do not have access to bank accounts “could through mobile phones, if the right system existed.” This being Congress, Zuckerberg put a partial U.S. spin on the unbanked, and noted that 14 million individuals in the country are part of that billion-plus roster.
“People pay far too high a cost — and have to wait far too long — to send money home to their families abroad,” he said. “The current system is failing them. The financial industry is stagnant, and there is no digital financial architecture to support the innovation we need. I believe this problem can be solved, and Libra can help.”
The Unbanked Argument
By afternoon, it was unclear just how Libra might help solve that problem, as some lawmakers noted that citizens who lack bank accounts may not actually trust banks. Zuckerberg countered that billions of people use Facebook services because they trust the company.
Less fully addressed was the fact that among the defectors from the Libra Association are the online marketplaces that would ostensibly underpin commerce done with Libra — including eBay, and payment networks such as Visa and Mastercard. The remaining stalwarts — such as FarFetch, focused on fashion boutiques and brands — might not be the far-reaching marketplaces that crypto enthusiasts envisioned. The unbanked, with relatively little wiggle room in terms of discretionary spending, are likely not going to shop on FarFetch anytime soon.
With a direct jab at the idea that a cryptocurrency would foster financial inclusion, Representative Brad Sherman said the poor and unbanked need dollars and pesos — in essence, hard currency — so they can buy things at local stores. Sherman noted, too, that cryptocurrencies can facilitate unlawful behavior, including the drug trade.
“If I appear to be anti-Facebook, I was anti-cryptocurrency back when you were anti-cryptocurrency,” he said to Zuckerberg, seemingly alluding to the advertising ban that took effect in January 2018, and was rolled back earlier this year.
He added that crypto and Libra seem to face a binary outcome: either failing, in which case investors lose money, or succeeding, in which case digital currency offers an alternative to the U.S. dollar as the world’s reserve currency. The dollar’s place as reserve currency, said Sherman, saves U.S. families as much as a thousand dollars annually because money pours into the U.S.
The Fed, he added, turns over billions of dollars to the U.S. Treasury in profit “that we in Congress spend because of the U.S. dollar. The U.S. dollar is an excellent currency as a means of accounts, and it serves all needs — except it’s really bad for tax evasion,” and a host of other crimes.
The Crime Factor
Several lawmakers expressed concerns that the anonymity of crypto in general, and the fact that association members would be able to offer digital wallets, might provide a haven for criminals. Zuckerberg said Facebook would seek to ban anonymous wallets from the platform, but acknowledged not being able to make that same statement for other Libra members.
“You’ve made no effort to help the unbanked anywhere else, at any other time. You should create a payments system with close to zero fees,” said Sherman. “For the richest man in the world to come and hide behind the poorest people in the world, and say that’s who you are trying to help? You’re trying to help those for whom the dollar is not a good currency — drug dealers, terrorists and tax evaders.”
Representative Patrick McHenry asked, if the effort to offer a payment service is among Facebook’s goals, why it might not go down the same road as Alipay, which has more than 900 million users. Zuckerberg said the tech infrastructure doesn’t exist yet in the U.S.
As Committee Chairwoman Maxine Waters contended, Facebook seeks to use its “size and its data to dominate the cryptocurrency market.” She called for a moratorium on the Libra project.
Some representatives expressed concerns over data management and security. Representative Nydia Velázquez pointed to the fact that Facebook, upon its 2014 deal to buy WhatsApp, had said it would keep the app separate from Facebook — then merged the two for data sharing.
Zuckerberg appealed to the U.S.’ financial standing on the global stage. He said that if Libra’s progress was halted, “the rest of the world isn’t waiting,” and that China is deep into its efforts to develop a digital version of the renminbi.
For now, the fate of Libra hinges on what happens in the U.S., in the halls of Congress, where Zuckerberg has been under fire. As he stated before the committee: Nothing will get launched before Libra has full support from U.S. regulators, regardless of what happens with international regulators.
That means, as Zuckerberg said, “all” regulators. In fact, Facebook might even leave the association if the other members opt to move ahead without the U.S. approvals.
In for a penny, then, in for a pound — or, in this case, a digital coin.