House asks Facebook: ‘What is Libra?’

House lawmakers  on Wednesday questioned how and why Facebook plans to enter the financial services industry and raised doubts about the viability and safety of the company’s proposed cryptocurrency payments system.

Members of a House panel grilled Facebook’s lead on Project Libra about concerns spanning from financial systemic risk and data privacy to core questions about what kind of product the social media giant was building with dozens of major corporations.

{mosads}Above all, though, lawmakers on Wednesday appeared skeptical about how Libra would fit in the financial system and why it would be profitable for the dozens of corporations already involved in its development. 

“What we’re struggling with is, what are you?” asked Rep. Ed Perlmutter (D-Colo.). “We think you’re a bank, but you’re not quite like a bank.” 

“I want to support your innovation, I want to support your efficiency that people believe you’re bringing to the table,” Perlmutter continued. “But I also don’t want anybody getting hurt here.”

David Marcus, head of Facebook subsidiary Calibra, insisted Libra was intended to expand financial system access to millions of unbanked consumers across the world through lower transaction costs. 

But skeptical members of the House Financial Services Committee came away with little clarity on how the federal government could monitor and mitigate the risks of a potentially transcendent financial network.

“If Facebook’s plans come to fruition, the company and its partners will yield immense economic power,” said Rep. Maxine Waters (D-Calif.), chairwoman of the Financial Services panel.

“Ownership of government assets on such a massive scale, without proper oversight, threatens to concentrate government influence in the hands of a few elites.”

Facebook has struggled to sell Washington on Project Libra, a proposed payment system based on a cryptocurrency backed by more than two dozen corporations, since it announced the initiative. Lawmakers and regulators are concerned about how Facebook could use the immense reach and data of its more than 2 billion members to influence the global economy and financial system. 

The relationship between Washington and the Menlo Park company had already broken down amid a barrage of controversies over Facebook’s failure to stave off foreign disinformation campaigns, protect user data from a number of breaches, and in the most high-profile case, defend against the Cambridge Analytica breach that saw a conservative public relations firm obtain data on hundreds of millions of Facebook users.

Congress has so far made it clear that Facebook is struggling from a dearth of trust in Washington as it works to launch its ambitious global currency project.

The currency, called Libra, would be managed by the Libra Association, a Swiss non-profit that will build a reserve of foreign currencies to support the digital coin. While Facebook would be one of up to 100 members of Libra Association, it will also operate Calibra, a digital wallet for system that will be available on its messaging services.

Some lawmakers on Wednesday compared Libra to payment processors and money transfer firms like PayPal, Venmo and Western Union. Others asked if Libra could be considered a security — like a stock or investment fund—since it would be based on the value of an array of chosen currencies.

Marcus said the primary goal of Libra is to provide a low-cost money transfer system for people unable to access or afford traditional banking services. He added that while Libra did not intend to operate as a bank, it would comply with all applicable financial regulations.

“It is not for me to say who should regulate us,” Marcus repeated throughout the day. “But my commitment is that we will meet all regulation and work with, consult with regulators and lawmakers.” 

Some lawmakers, primarily Republicans, said Washington should strive to understand Libra to before moving to snuff it out. 

Rep. Patrick McHenry (R-N.C.), the Financial Services panel’s ranking Republican, said despite his concerns with Libra, “my Republican colleagues and I want to first try and understand it” rather than have a “knee jerk reaction of banning something before it begins.”

Rep. Tom Emmer (R-Minn.), who’s supported efforts to foster cryptocurrency policy, added that “I’m amazed at how easily representatives from California are so willing to suppress the innovation occurring in their own state.”

It was unclear if Emmer was referring to Waters, who has proposed banning Facebook from moving forward with Libra, or Rep. Brad Sherman (D-Calif.), who compared the project to Osama bin Laden.

But even lawmakers like Emmer, who are sympathetic to cryptocurrency, voiced issues with how the company was explaining Libra to skeptical government officials.

“You and your company have decided to approach this undertaking with as equal a level of ignorance and misunderstanding as those who wish to quell any new developments in cryptocurrency,” Emmer said.

“People have concerns with the amount of data you have on them, and now you want to be their money, too.”

Marcus emphasized that the Libra project is still in its infancy, as the Libra Association continues to work out its charter. 

When Rep. Sean Duffy (R-Wisc.) pressed Marcus over whether controversial figures banned from Facebook will be allowed to use the Calibra wallet, Marcus replied, “We haven’t written the policy yet. This is a question that’s really important to get right.” 

More hearings on Libra are likely to follow the two held in the Senate and House this week. While Marcus said he would be willing to come in for more briefings, he declined to answer whether CEO Mark Zuckerberg would be willing to testify about the project. 

The House Financial Services Committee is currently circulating a draft of a bill that would major social media and technology companies from providing financial services and offering digital currencies, which would effectively outlaw Libra. And Waters has continued to ask Facebook to agree to halt the Libra project until the regulatory issues are worked out.

When asked whether Facebook would agree to the moratorium, Marcus said, “The commitment is that we will not launch until we have addressed all concerns.”