Dave Michaels and colleagues report in the Wall Street Journal:
The bipartisan firewall Washington erected since Facebook announced its cryptocurrency plans threatens the (company's) vision. U.S. regulators and policy makers indicated that to move forward it would need to adapt to the old system, regulations governing risks such as money laundering, terrorism financing and evasions of sanctions.That pushback was echoed overseas, as the Group of Seven industrialized nations which includes European governments already wary of the U.S.’s tech giants is expected to deliver a report on the topic. Libra could undermine sovereign currencies, creating financial instability in a crisis.
The Trump administration raised national security concerns about Facebook Inc. FB -0.58% ’s plans to launch a cryptocurrency as a growing chorus of U.S. and international officials voiced resistance to the tech giant operating its own digital money.
“Many players have attempted to use cryptocurrencies to fund their malign behavior. This is indeed a national security issue,” Treasury Secretary Steven Mnuchin said in remarks at a Monday news briefing. Should Facebook develop its digital coin, called Libra, to “have a payments system correctly with proper [anti-money-laundering safeguards], that’s fine,” Mr. Mnuchin said.
But, he cautioned, “They’ve got a lot of work to do to convince us to get to that place.”
Mr. Mnuchin’s remarks came one day before Facebook executive David Marcus is set to take the hot seat in a Senate Banking Committee hearing. Testimony Mr. Marcus prepared for the panel sought to quell worries—similar to those already voiced by President Trump and Federal Reserve Chairman Jerome Powell—about Facebook’s foray into crypto and its potential impact on global currencies and central banks.
Rep. Maxine Waters (D., Calif.), the chairwoman of a powerful House committee, separately drafted legislation that would block the social-media giant from operating Libra, which Facebook has said it hopes to make available by next year.Mr. Marcus said Monday that Switzerland’s financial watchdog would supervise Libra’s governing body, adding that the digital money would never replace national currencies or undermine the role of central banks.
But the bipartisan firewall Washington has swiftly erected since Facebook announced its cryptocurrency plans threatens the sweeping vision Mr. Marcus described last month to the New York Times, when he said: “It feels like it is time for a better system. This is something that could be a profound change for the entire world.”
U.S. regulators and policy makers indicated to the social-media giant that to move forward it would need to adapt to the old system—a panoply of regulations governing risks such as money laundering, terrorism financing and evasions of sanctions.
That pushback was echoed overseas, as the Group of Seven industrialized nations—which includes European governments already wary of the U.S.’s tech giants—plans this week to discuss risks posed by Libra and other cryptocurrencies in Chantilly, France, a French official said. Benoît Cœuré, an executive board member of the European Central Bank, is expected to deliver a report on the topic during the meeting, the official added.
Some European officials have worried that Libra could undermine sovereign currencies and the power of the European Central Bank, potentially creating financial instability in a crisis. Germany’s finance ministry, in an internal paper, said the government should work on ways to prevent Libra from becoming a full alternative to the euro, according to a senior government official.
Mr. Marcus on Tuesday faces the challenge of easing concerns that Facebook—already embroiled in policy fights over digital advertising and customer data—is primed to disrupt finance, one of the world’s most highly regulated sectors.
Some Democratic lawmakers have called on Facebook to suspend work on Libra until Washington is satisfied with the oversight regime. Ms. Waters is prepared on Wednesday, when Mr. Marcus separately appears before the House Financial Services Committee, to discuss draft legislation that would bar Facebook and other social-media companies from entering the world of banking and digital assets.
It isn’t clear whether such legislation would pass Congress. But, so far, Democrats and Republicans have united around worries about Libra, adding to the broad misgivings Messrs. Trump and Powell have voiced about the company’s crypto plans.
“We know we need to take the time to get this right,” Mr. Marcus said in his written Senate testimony. “Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
Mr. Marcus said Facebook and its partners can devise novel and effective ways to combat money laundering and terrorism financing, citing their “considerable technical expertise.” Facebook publicized Libra early to ensure coordination with central banks, regulators and lawmakers, he added.
Libra’s top regulator would be the Swiss Financial Markets Supervisory Authority, Mr. Marcus said, because the group in charge of the project will be based in Geneva. The group includes 28 companies, including Mastercard Inc. and eBay Inc., showing that Facebook wouldn’t control Libra after it is off the ground.
The cryptocurrency’s main purpose is to enable people to use and transfer money around the globe more cheaply than current options allow, Facebook said. The Silicon Valley giant added Libra would be most useful in countries where banking options are scant and the home currency is volatile.
Facebook has said Libra would be a “stablecoin” pegged to a basket of developed-world currencies. The coins will be backed by a reserve of financial assets that include bank deposits and government bonds.
The Libra group “will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy,” Mr. Marcus’s testimony said.
Libra isn’t an investment, Mr. Marcus also said. “People will not buy it to hold like they would a stock or a bond,” his testimony said.
If Libra isn’t an investment, it would be free from oversight by the Securities and Exchange Commission. The SEC enforces investor-protection laws that require frequent and detailed public disclosures. The SEC, which has cracked down on cryptocurrencies over the past two years, is reviewing whether Libra should fall under its jurisdiction, according to people familiar with the matter.
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