Facebook ripped on currency plan
WASHINGTON — Skeptical senators questioned Facebook’s plan to help create a global currency Tuesday, arguing that the Silicon Valley giant is seeking unprecedented influence over the financial system.
“Facebook is dangerous,” Sen. Sherrod Brown, D-ohio, said during a Senate Banking Committee hearing on the cryptocurrency project. “We would be crazy to give them a chance to experiment with people’s bank accounts.”
Republican Sen. Martha Mcsally of Arizona added: “I don’t trust Facebook ... Instead of cleaning up your house, you are starting a new business model.”
Facebook says the cryptocurrency, known as Libra, would bridge a gap in the financial system for people who lack access to traditional banking. The project would ultimately allow Facebook’s 2.4 billion users worldwide to send and transfer money quickly — and with almost no fees, the company says.
But the project, unveiled last month, sparked immediate concerns among leaders around the world about whether Libra would threaten government-backed currencies, encourage money laundering, and jeopardize consumers’ data. On Monday, Treasury Secretary Steven Mnuchin said criminal misuse of cryptocurrency is a “national security issue,” and last week, Federal Reserve Chair Jerome Powell told Congress that Libra raises “serious concerns.”
“We agree with all of the concerns,” said David Marcus, head of Calibra, the Facebook subsidiary focused on cryptocurrency. Libra
will not be launched until all of regulators’ questions are addressed, he said.
Many senators focused Tuesday on whether Facebook, which has been engulfed in controversy for more than two years, should be trusted with such a potentially powerful technology. Just last week, the Federal Trade Commission approved an $5 billion settlement with the company over its privacy practices.
“Why in the world should Facebook, of all companies, given the last couple years, do this?” asked Sen. Brian Schatz, D-hawaii.
“We shouldn’t stand back and wait (when) we have the resources and engineering talent,” Marcus responded.
“Because you’re so big, you think you should just get bigger?” Schatz said.
Marcus repeatedly attempted to relieve senators’ concerns, promising that Facebook would not directly control Libra. The tech giant is one of nearly 30 members of a coalition that would control the cryptocurrency, Marcus said.
“I know that we will have to earn people’s trust for a very long period of time in order to get the benefit of them wanting to use” the program, he said.
Brown rattled off instance after instance in which, he said, Facebook failed to protect its users and made money to the detriment of democracy. The senator said Facebook decimated the newspaper industry by allowing the sharing content on its social media platform without driving any profits to the companies that created that content. He said it also has run psychological experiments that successfully determined they could manipulate moods, and it uses an algorithm that drives the most controversial and divisive topics to the top of people’s news feeds.
Facebook’s algorithm might have contributed in one case to a genocide, Brown said, citing a United Nations report that detailed how the social media platform was used to spread propaganda in Myanmar in advance of violence that led to the death of at least 600 members of the Rohingya people and more than 700,000 refugees fleeing the country.
The senator likened Facebook to “a toddler who has gotten his hands on a book of matches. Facebook has burned down the house over and over, and called every arson a learning experience.”
It’s for that reason, Brown said, that the company has no business launching a digital currency.
“It takes a breathtaking amount of arrogance to look at that track record and think, “You know what we really ought to do next? Let’s run our own bank and our own forprofit version of the Federal Reserve for the world,’” he said.
“We would be crazy to give them a chance to experiment with people’s bank accounts, and to use powerful tools they don’t understand, like monetary policy, to jeopardize hardworking Americans’ ability to provide for their families.”
Brown asked Marcus whether he would pledge to accept 100 percent of his compensation in Facebook currency. Marcus, after some back and forth, said he would. Some Republicans came to the company’s defense. Libra has a lot of potential, and “to strangle this baby in the crib is premature,” said Sen. Patrick Toomey of Pennsylvania. “I think we should be exploring this and considering the benefits and concerns.”
Still, Facebook faces a tough task winning over many lawmakers. Marcus is scheduled to appear before the House Financial Services Committee on Wednesday. That committee is led by Rep. Maxine Waters, D-calif., who has introduced legislation that could block Libra.
The bipartisan criticism of Libra also could slow efforts to sign up more corporate sponsors. The project has received a pessimistic reception from Wall Street, which is weary of Silicon Valley encroachment on the financial industry and questioned whether Libra would face the same strict — and often cumbersome — oversight as a traditional bank does.
“As long as it’s (a) level playing field reviewed by regulators, we have no problem with what anyone does,” Jaime Dimon, chief executive of Jpmorgan Chase, said in a call with reporters Tuesday.
A few years ago, Dimon drew the ire of the crypto community when he called bitcoin a “fraud.”
But since then, Jpmorgan, the country’s largest bank, has begun preparing a pilot program for an internal cryptocurrency, JPMCOIN. Its reach would be limited to internal transactions with the bank’s corporate clients.
Dimon did not respond to a question about whether the bank would join the Calibra coalition backing Libra.