Federal Reserve Chairman Joins Chorus of Libra Critics
Earlier this week, United States Federal Reserve Chairman Jerome Powell testified before Congress. While the meeting’s big headline was Powell’s suggestion that a rate cut was likely later this month — news that brought market indices to all-time highs — one company that was likely not too happy with everything Powell had to say was Facebook. That’s because Powell joined those criticizing the social network’s plans to introduce a cryptocurrency called Libra.
As Reuters reports, Powell said in his testimony, “Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.” He went on to say that, until those issues were addressed, “I don’t think the project can go forward.” Powell also urged that regulatory assessment of Libra shouldn’t be rushed, saying, “It’s something that doesn’t fit neatly or easily within our regulatory scheme but it does have potentially systemic scale. It needs a careful look, so I strongly believe we all need to be taking our time with this.” In response to the chairman’s remarks, Facebook spokeswoman Elka Looks said in an e-mail to Reuters, “We are very much aligned with the Chairman around the need for public discourse on this. This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback.”
Obviously Powell isn’t the first to express concern about Libra. In fact, earlier this month Democrats in the U.S. House of Representatives Committee on Financial Services wrote a letter in which they stated, “The scant information provided about the intent, roles, potential use, and security of the Libra and Calibra exposes the massive scale of the risks and the lack of clear regulatory protections.” The committee concluded by writing, “Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action. During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so risks a new Swiss-based financial system that is too big to fail.”
Incidentally, while the announcement of Libra has generally been positive for Bitcoin, the price of BTC dropped 7% after Powell’s remarks. Then again, the coin has proven as volatile as ever in recent weeks, falling below $10,000 at times and reaching as high as $14,000 other times. While this type of fluctuation is likely something regulators fear for Libra, it’s worth noting that the token will be backed by fiat currency to help with stability.
If it wasn’t already clear before, Facebook will certainly have a difficult road ahead as it attempts to bring Libra and its wallet Calibra into circulation. While it might be hasty to rule out their vague launch timeframe of next year, it wouldn’t be surprising if the project does get delayed as the company tries to stay on the right side of regulators. In the meantime, expect plenty more debates about Libra and cryptocurrencies to persist.