David Marcus, head of Facebook’s cryptocurrency subsidiary Calibra (Photo credit: Adam Tinworth, Flickr)
Facebook says it’s willing to work with U.S. regulators prior to offering its budding cryptocurrency Libra to the public, a concession that seemed designed to appease a bipartisan group of lawmakers who fear adoption by the company’s 2.38 billion registered users could undermine the stability of the global financial system and give Facebook access to too much personal financial information.
The social network announced Libra in June as a tool intended to make it easier for people to send money around the world quickly and cheaply. The company says the digital currency and underlying infrastructure will especially help the estimated 1.7 billion people in the world without access to a traditional bank. At the same time, it announced plans for Calibra, a digital wallet to hold Libra that will be available in Messenger, WhatsApp and as a stand-alone app expected to launch in 2020.
David Marcus, who leads the company’s cryptocurrency initiative, answered questions from lawmakers during a grueling two-hour hearing Tuesday before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals,” Marcus said in a prepared opening statement.
He defended the cryptocurrency by emphasizing that in order to use Facebook’s Calibra digital wallet you would need to create a new account and use a government-issued ID to confirm your identity. He said Facebook believes this form of authentication will deter criminals from using the currency for nefarious purposes.
“The way that we think about protecting the integrity of the network against money laundering, criminal activity and terrorism funding is by moving a lot of cash transactions into the digital world. Cash transactions are where most crimes happen,” he said. “The way we are applying [anti-money-laundering] programs as far as the Calibra wallet is concerned, we will have strong identity [protections].”
Among the top concerns from lawmakers is that Libra would allow criminals to bypass the regulated banking system. U.S. Treasury Secretary Steve Mnuchin expressed concern on Monday that the Libra cryptocurrency could be used for money laundering or drug trade. President Trump tweeted several of the same concerns several days prior, and the same talking point was brought up several times by lawmakers during Tuesday’s Senate hearing.
Trump tweeted on Thursday that he is “not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.“ He added, “Facebook Libra's ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”
“Clearly we made mistakes in the past, and it’s a top priority for Mark [Zuckerberg] and the rest of the leadership team to really address this,” Marcus told Forbes prior to the hearing. “And as far as I’m concerned, I see Libra as an opportunity to demonstrate that we have learned and we are a different company now than we were.”
Senators also chastised Facebook for failing to prevent misuse of consumer data in the past, included its admission last year that a political-ad-targeting firm had improperly gained access to more than 87 million users. “Facebook has demonstrated through scandal after scandal that it doesn’t deserve our trust. It should be treated like the profit-seeking corporation it is, just like any other company,” said Senator Sherrod Brown (D- Ohio).
He cited other privacy breaches, such as the millions of fake posts spread by a Russian propaganda firm during the 2016 U.S. presidential election. “Now Facebook asks people to trust them with their hard-earned paychecks. It takes a breathtaking amount of arrogance to look at that track record and think, ‘You know, really what we really ought to do next? Let’s run our own bank and our own for-profit version of the Federal Reserve. Let’s do it for the whole world.’”
Facebook plans to make money from Libra eventually, but the company has no immediate plans to use transaction data for advertising purposes. Answering questions about the long-term opportunity for Facebook, Marcus said, “It’s the ability for the 90 million small businesses [on Facebook] to transact with one another. And if there’s more commerce, there will be more advertising revenue for Facebook. More commercial activity on Facebook equals more money for Facebook.”
No Calibra financial account information will be transmitted to Facebook at the onset, according to Marcus. He said Facebook announced the project in its early stages to get feedback from lawmakers and regulators. He said there will be a constitution or set of rules that will eventually be made public. “We’re hoping we will avoid conflicts of interest,” Marcus said. “This is why we shared our white paper early.”
Marcus will appear before the U.S. House Financial Services Committee on Wednesday.