Federal Reserve Chairman Jerome Powell has a list of red flags ahead of the launch of Facebook’s global cryptocurrency and has launched a working group to examine it.
“Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability,” Powell said in front of a Congressional committee Wednesday. “These are concerns that should be thoroughly and publicly addressed.”
The Fed chair fielded multiple questions about Facebook’s ambitions from members of the House Financial Services Committee as part of a semiannual report to Congress, which was supposed to focus on monetary policy. When asked by Rep. Maxine Waters, D-Calif., chairwoman of the House Financial Services Committee, about regulatory oversight of the global cryptocurrency project, Powell said the approach should be a “careful one, not a sprint to implementation.”
In June, Facebook announced that it would launch a cryptocurrency run by the nonprofit Switzerland-based Libra Association in 2020. The project will not be controlled or fully run by Facebook, according to its white paper. It’s also being run by a collaboration of organizations and companies that include Stripe, Uber, Mastercard, Visa, PayPal and Spotify. Still, Facebook has plans to profit from it through a new subsidiary, Calibra, that is building a digital wallet to store and exchange the cryptocurrency.
Later in the hearing, Powell said the project “cannot go forward” without broad satisfaction with Facebook’s answers to lawmakers’ and regulators’ questions.
“All of those things will need to be addressed very thoroughly and carefully, and in a deliberate process,” he said.
The tech giant has faced widespread scrutiny in the days and weeks following its announcement, catching the attention of Waters and other senior congressional finance committee members, global regulators, former lawmakers and industry insiders who question Facebook’s ambitions. Rep. Waters called for a delay in the project, which she called a continuation of its “unchecked expansion and extending its reach into the lives of its users.”
At Wednesday’s hearing, Rep. Bran Sherman, D-Calif., was among the most critical of Libra and its potential “to transfer power from the United States government to sanctions and tax-evaders, terrorists, and drug dealers while reducing the importance of the U.S. dollar as the reserve and trade currency.” Sherman spread the criticism to Facebook CEO Mark Zuckerberg, too.
“Ultimately, it is time to bring Mark Zuckerberg here,” Sherman said. “He is the one that has made billions of dollars out of us, relies on the U.S. government to protect his billions and now wants to undermine the system.”
Facebook’s David Marcus, head of Facebook’s Calibra digital wallet that will be used to store Libra, is scheduled to testify before the committee on July 16, while the House Financial Services Committee will hold its own hearing focused on Libra on July 17. Marcus responded to questions from the U.S. Senate Banking Committee in a letter Tuesday, saying the company needs governments, central banks and regulators involved to properly launch the digital asset and Facebook “can’t do this alone.”
“We want, and need, governments, central banks, regulators, non-profits, and other stakeholders at the table and value all of the feedback we have received,” Marcus said in a letter to Senate Banking Committee Chairman Mike Crapo (R-ID) and Sen. Sherrod Brown (D-OH), the committee’s ranking member.
When asked by Rep. Ed Perlmutter, D-Co., if Powell would support a moratorium until there is a better understanding of the project’s impact, Powell said he “strongly believes we need to be taking our time here.”
“It’s something that doesn’t fit neatly or easily within our regulatory scheme,” he said. “It does have a potentially systemic scale and for all the reasons we’ve discussed it needs a careful look.”
Powell said the central bank already met with Facebook representatives in the months leading up to its launch, and has set up the working group to focus on the unanswered questions. The Fed is “coordinating” with colleagues in other regulatory agencies and other central banks around the world, Powell said.
“We do support responsible innovation in the financial services industry as long as the associated risks are appropriately identified and managed,” he said.
— CNBC’s Salvador Rodriguez contributed reporting.