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Facebook faces second day of Libra opposition on Capitol Hill

Posted at 8:30 AM, Jul 17, 2019
and last updated 2019-07-17 13:57:43-04

Facebook is trying again to sell lawmakers on Libra Wednesday during a House Financial Services Committee hearing.

But as the hearing began, it became clear that wouldn’t be an easy task. In her opening statement, Chairwoman Maxine Waters again asked Facebook to halt Libra’s development until regulators can take action. She also introduced draft legislation aimed at banning Libra altogether.

“I have serious concerns with Facebook’s plans,” said Waters, adding that “if Facebook’s plans come to fruition, the company and its partners will wield immense economic power that could destabilize currencies and governments.”

Facebook executive David Marcus, who heads Libra, is representing the company at the hearing. It’s the second day of testimony for Marcus, who spoke before the Senate Banking Committee Tuesday. That turned out to be a tense discussion on Facebook’s fitness to run a universal currency, and an airing of Committee members’ distrust of Facebook.

Wednesday’s hearing will also include a panel of experts on fintech and consumers who will discuss the potential implications of Libra.

Members of the House Committee have questioned Marcus about their wide-ranging concerns about Libra, including investor protections, national security and monetary policy implications.

Marcus, asked by several House Committee members whether he would agree to the moratorium on Libra’s development, didn’t give a direct answer.

“We are fully committed to working with regulators here and around the world,” Marcus said. “Facebook will not offer the Libra digital currency until we have fully addressed regulator’s concerns and received the proper approvals.”

A Facebook spokesperson confirmed to CNN Business this week that Marcus’ comment means that Facebook will not offer ways for users to access Libra, such as its Calibra wallet, though Libra may still launch.

Marcus has stressed that getting behind the project doesn’t necessarily require trusting Facebook, because the currency will be managed by a consortium of companies and nonprofits of which Facebook is only one of 28 members. He also repeated the company’s desire to work with regulators on Libra.

“We expect the review of Libra to be among the most extensive ever,” Marcus said.

Brad Sherman, a Democrat from California, called on Facebook CEO Mark Zuckerberg to appear before the committee himself.

“We need to get Mark Zuckerberg here,” Sherman said. “This is the biggest thing, or it tries to be the biggest thing this committee will deal with this decade. And while we have his employee here, this is Zuckerberg’s program.”

Compared to Tuesday’s Senate Banking hearing, where lawmakers from both parties seemed mostly united in distrust of Facebook, the House hearing brought some more partisan discord.

In his opening statement, ranking member Patrick McHenry stressed the importance of making sure Washington is “not the place where innovation goes to die.”

“Republicans stand ready to work with innovators to successfully implement responsible technology here in the United States, here domestically, before we lose out to other parts of the world,” McHenry said.

Waters attempted to clarify: “We are all in favor of innovation, it’s not one side of the aisle versus the other. Despite the fact that we all support innovation … we need to get on top of something as massive and important as this project.”

Implications for Consumers:

Libra aims to make it easier and cheaper to send money around the world so that a person who, for example, wants to send money to family in a developing country doesn’t have to contend with hefty remittance fees, according to Facebook.

Marcus told the Committee that person-to-person transfers on Calibra would be possible at little to no cost, and said the company is aiming to make that service free. Revenue from the service would come from charging “competitive” fees for merchants using Calibra.

Another question raised during the Senate hearing and then more explicitly in the House hearing is who exactly will be able to use Libra and Calibra. The inquiry echoes accusations against Facebook of political bias after it banned fringe right-wing figures like Louis Farrakhan and Milo Yiannopolis. Sean Duffy, the Republican from Wisconsin, asked whether Yiannopolis and Farrakhan would be able to use Calibra.

Marcus said Facebook and Calibra have yet to write a policy to address that question.

“This is a question that is really important to get right,” he said.

Implications for the financial system:

Lawmakers didn’t hold back on expressing their fears about Libra.

Gregory Meeks, a Democrat from New York, compared the potential systemic risk of Libra to that of Lehman Brothers, which collapsed ahead of the 2008 recession.

Legislators have been particularly concerned about Libra because of Facebook’s massive reach — they worry it would spur mass buy-ins to the cryptocurrency market before regulators can get a handle on it.

“I think there is an idea that one day we will launch and suddenly 2 billion people will arrive on the Calibra wallet,” Marcus said. “This is not the approach we are taking.”

He said users would not be able to use their Facebook accounts to access Calibra, instead they would have to create a separate account using their government-issued ID in order to meet federal anti-money laundering regulations.

Marcus also stressed that neither the Libra Association nor Calibra are aiming to compete with banks. He said Libra will instead function more like a payment tool.

“We will be active in the payment space the same way many other non-banks are active in the payment space,” Marcus said, referring to the Venmo and PayPal.

But Facebook has also said that it will aim to offer additional financial services through Calibra in the future.

Marcus said it’s too early to tell what kind of services, though he said the company plans to work with existing banks and financial services providers.

“If we ever get into banking services, which right now we’re not considering, ” Marcus said, “then yes we would need to have proper banking regulation.”

CNN’s Brian Fung contributed to this report