Facebook CEO Mark Zuckerberg faced a threat to break up his company as a congressional hearing opened on the social media giant’s proposal to establish a cryptocurrency, Libra.
The cryptocurrency proposal drew scrutiny due to Facebook Inc.’s enormous base of over 2 billion monthly users and its advertised promise to “transform money.” Facebook’s handling of user data, its role in propagating Russian propaganda before the 2016 election, antitrust concerns and other issues have made the company into a popular target of bipartisan opprobrium.
House Financial Services Chairwoman Maxine Waters, D-Calif., opened the hearing Wednesday with a list of issues with Libra, which would be a “stablecoin” backed by a basket of currencies and overseen by a consortium of private corporations and nonprofit organizations; and Calibra, a Facebook subsidiary that would operate a digital wallet using Libra.
“Facebook’s plans … raise many concerns regarding privacy trading risk, discrimination, opportunities for diverse-owned financial firms, national security, monetary policy and the stability of the global financial system,” Waters said.
“Each month, 2.7 billion people use your products. That’s over a third of the world’s population. That’s huge. That’s so big that it’s clear to me … that perhaps you believe you’re above the law,” she said. “And it appears you’re aggressively increasing the size of your company and are willing to step on or over anyone, including your competitors, women, people of color, your own users and even our democracy, to get what you want.
“All of these problems I’ve outlined, and given your company’s reach, it should be clear we have serious concerns about your plans to establish a global digital currency that would challenge the U.S. dollar,” Waters continued. “In fact, you have opened up a serious discussion about whether Facebook should be broken up.”
Zuckerberg tried to deflate those concerns, acknowledging them in his opening remarks. “I believe this [Libra] is something that needs to get built, but I get that I’m not the ideal messenger for this right now,” he said. “We’ve faced a lot of issues over the past few years, and I’m sure people wish it was anyone but Facebook that would propose this.”
Zuckerberg was called to testify after Facebook’s announcement about Libra in June was met by near-universal concern by policymakers, including President Donald Trump, Federal Reserve Board Chairman Jerome H. Powell and Waters — three individuals who rarely see eye-to-eye.
The committee’s ranking member, Republican Patrick T. McHenry of North Carolina, pushed back on the criticism directed at the tech billionaire.
“Today is a trial on American innovation,” McHenry said. “There is a growing concern about the role technology plays in our lives. That’s warranted.”
But McHenry added: “Politicians enabled by special interests and a lack of understanding of new technology use fear to justify what is ultimately a power grab: New laws and regulations, but ultimately old and tired ways … to centralize power here in Washington.”
In his opening remarks, Zuckerberg appealed to those worried that the United States might fall behind other countries in developing new technologies like cryptocurrencies, and lose out on the economic benefits they might confer.
“While we debate these issues, the rest of the world isn’t waiting. China is moving quickly to launch a similar idea in the coming months,” Zuckerberg said. “Libra will be backed mostly by dollars, and I believe it will extend America’s financial leadership as well as our democratic values and oversight around the world. If America doesn’t innovate, our leadership is not guaranteed.”
‘A whole host of dangers’
Libra’s governance structure also worries lawmakers. Rep. Bill Foster, D-Ill., chairman of the House Financial Services Committee’s Artificial Intelligence Task Force, told CQ Roll Call before the hearing that letting a potentially massive share of commercial transactions fall under the purview of a coalition of for-profit corporations and tech-oriented nonprofit groups left him uncomfortable. “There’s a whole host of dangers there,” he said.
Libra Association’s initial members include Spotify, a handful of venture capital investment firms and the Creative Destruction Lab, which, Foster said, “would not have been my first choice for the name of an organization where you’re talking about supplanting central banks for financial stability.”
Cryptocurrencies shouldn’t allow users to be anonymous or transactions to be irrevocable, Foster said on Monday. Cryptocurrency supporters have said that would impose a higher standard on digital assets than cash, but Foster wasn’t swayed by that argument.
“You never hear a ransomware that locks up your screen and says, ‘I want you to put $10,000 in a brown paper bag and put it in a trash can in Central Park,’” he said. “The difference is the mobility of digital assets… There’s a qualitative difference between cryptoassets and cash for precisely that reason.”
Foster credited Facebook’s “checkered record for consumer privacy” for his introduction of companion legislation to a Senate bill from Virginia Democrat Mark Warner and Missouri Republican Josh Hawley that would require companies to tell consumers what data they are collecting and how they monetize it.
Zuckerberg reiterated the claim that Libra would help provide the world’s unbanked access to the financial system, but offered no explanation of how it would do so. The Federal Deposit Insurance Corporation’s 2017 survey of the unbanked found that the primary reasons people didn’t open bank accounts were a lack of money, distrust of banks, and privacy concerns.
At a House Financial Services Committee hearing Tuesday, Treasury Secretary Steven Mnuchin called Libra’s launch “premature” and said its backers had not yet addressed regulators’ concerns that the cryptocurrency could facilitate illicit transactions.
A day before the hearing, Facebook announced that it would spend $1 billion for affordable housing near its headquarters in Menlo Park, Calif., over the next decade. Silicon Valley has some of the most expensive rent prices in the country.