WASHINGTON: Facebook endured a second day of criticism from Congress over its plan to create a digital currency as senior House Democrats asked Facebook to scale back the project and threatened legislation that would block big tech companies from getting into banking.
Facebook’s massive market power and its record of scandals, fines and privacy breaches were on trial at a hearing July 17 of the House Financial Services Committee. Lawmakers from both parties insisted they cannot trust the social network giant.
“I think you’re pretty low on the trust spectrum right now, and understandably,” Rep. Vicente Gonzalez, D-Texas, told David Marcus, the Facebook executive leading the project. It was Marcus’ second straight day of tough questioning by lawmakers.
Among their concerns is the risk that the new currency, to be called Libra, could be used for illicit activity such as money laundering or drug trafficking. US lawmakers also worry that the massive reserve created with money used to buy Libra could supplant the Federal Reserve and destabilise the financial system, and that consumers could be hurt by Libra losses.
The committee’s leader, Rep. Maxine Waters, D-Calif., has asked Facebook to suspend its plan for the new currency until regulators and lawmakers have a chance to fully review it. She renewed that demand to Marcus.
Rep. Carolyn Maloney, D-N.Y., asked that Facebook commit to starting with a pilot project with no more than a million users, overseen by the Federal Reserve.
If Facebook cannot meet that request, Maloney said, “then Congress should seriously consider stopping this project from moving forward”.
Waters held out the prospect of legislation that would prohibit big tech companies such as Facebook, Google, Amazon and Apple from becoming chartered or licensed as US financial institutions, and thus able to offer banking services, and specifically from establishing a digital currency.
Facebook, marshalling its more than 2 billion users around the world, “is apparently trying to create a new global financial system that will compete with the US dollar”, Waters said.
The congressional criticism thickened the cloud over Facebook’s plan, coming after negative statements and expressions of concern from the two most powerful financial regulators, Fed chairman Jerome Powell and Treasury Secretary Steven Mnuchin, as well as from US President Donald Trump himself.
In a rare endorsement of Trump’s views, committee Democrats projected his negative tweets last week about cryptocurrencies and Libra on a giant electronic screen in the hearing room. Trump said Libra “will have little standing or dependability”.
As he did at Tuesday’s hearing by the Senate Banking, Housing and Urban Affairs Committee, Marcus repeatedly took pains to assure lawmakers that Facebook would not launch the currency project until it had received all the necessary approvals from regulators and secured safeguards to protect the privacy of users’ data. He said Facebook will not control Libra because Facebook will be only one of about 100 companies and non-profits in an association that will manage the currency.
Marcus said the plan would open low-cost online commerce to millions of people around the world who lack access to bank accounts and would make it cheaper to send money across borders.
He did not agree to a suspension of the plan or a pilot project.
“We will take the time to get this right,” Marcus said.
He said Facebook isn’t looking to base the Libra project in Switzerland in order to evade oversight, but because that country is recognised as an international financial centre.
Acknowledging lawmakers’ concerns over Facebook’s record on data privacy, Marcus said, “I think trust is essential and it’s clear we’ve made mistakes. We’re owning these mistakes.”
The committee’s senior Republican, Rep. Patrick McHenry of North Carolina, said scepticism over the project is justified but the effort should not be prohibited outright. A thorough review is needed, “instead of a knee-jerk reaction of banning something before it begins”, McHenry said.
Rep. Tom Emmer, R-Minn., said the legislation Waters is proposing to ban big tech companies from banking “has no constitutional basis”.
Marcus’ assurance that Facebook won’t control Libra failed to convince Rep. Brad Sherman, D-Calif., who focused on Facebook CEO Mark Zuckerberg.
“This is the Zuck buck,” Sherman insisted. “This is a godsend to drug dealers” and other criminals. “Zuckerberg has billions but he doesn’t have the authority to print more. ... This is an attempt to transfer enormous power from America to Facebook and its allies.”
The planned digital currency is to be a blend of multiple currencies, which means the exchange rate will fluctuate. – AP