Thursday, 23 May 2024

Facebook's Libra will rival US monetary system cites US House Financial Services Committee

5 min read

By Fatima G. Parel

The US House of Representatives’ Financial Services Committee has called for a halt to Facebook's cryptocurrency-based digital wallet citing serious concerns over privacy, trading, national security, and monetary policy issues.

A month ago, varied reactions greeted Facebook’s (FB) revelation, sharing its plans to launch a new digital wallet along with a new global currency, named Calibra and Libra, respectively. Yet none was more powerful than the letter sent on 2 July 2019 by the United States House Committee on Financial Services addressed to FB founder, chairman, and CEO Mark Zuckerberg, FB chief operating officer (COO) Sheryl Sandberg, and David Marcus, CEO of Calibra.

In the letter, the committee, chaired by Representative Maxine Walters, noted that FB provided very little information on the intent, roles, potential use, and security of Libra and Calibra. The committee further raised an alarm on potential risks, saying “If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger US and global financial stability. These vulnerabilities could be exploited and obscured by bad actors, as other cryptocurrencies, exchanges, and wallets have been in the past. Indeed, regulators around the globe have already expressed similar concerns, illustrating the need for robust oversight”.

Walters also reiterated the committee’s concerns on what she deemed were threats to privacy and security issues. “Investors and consumers transacting in Libra may be exposed to serious privacy and national security concerns, cybersecurity risks, and trading risks. Those using Facebook’s digital wallet – storing potentially trillions of dollars without depository insurance– also may become unique targets for hackers. For example, during the first three quarters of 2018, hackers stole nearly $1 billion from cryptocurrency exchanges. The system could also provide an under-regulated platform for illicit activity and money laundering.”

Although it is not only in the US that the same concerns have been raised over the use of cryptocurrency.

Early last year, the Japanese government also urged other members of the G20 to take steps in order to prevent cryptocurrencies from being used for money laundering. At the same time, UK Chancellor Philip Hammond also announced a new task force to look into cryptocurrency transactions.

Dušan Stojanovic, founder and director at True Global Ventures also cited the cryptocurrency during a panel discussion at the recent The Asian Banker Future of Finance Summit on “The Next Global Financial Crisis”, saying “The other threat to future global financial stability is the potential dismantling of the US dollar and treasury bills as the dominant store of global reserve as they become increasingly challenged by alternative reserve “eco-systems”, created by either big tech companies – for instance, a trusted cryptocurrency favoured by a younger generation who distrusts or rejects the dollar.”

The committee’s letter also contained the same thought as that of Stojanovic. “It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival US monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over two billion users, but also for investors, consumers, and the broader global economy.”

To give government regulators and the Congress time and opportunity to know more about the pertinent issues, Walters has requested that FB and its partners immediately agree to a moratorium.

A full committee hearing on “Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System” is set on 17 July 2019.

Keywords: Digital Wallet, Cryptocurrency, Mobile Payments, Technology, Cybersecurity, Trading, Anti Money Laundering
Institution: Facebook, Calibra, Libra, True Global Ventures
People: Mark Zuckerberg, Sheryl Sandberg, David Marcus, Maxine Walters, Philip Hammond, Dušan Stojanovic
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