U.S. lawmakers repeatedly pressed Facebook’s top blockchain executive to halt development of the Libra cryptocurrency during a contentious hearing on the project Wednesday.
They didn’t get far.
David Marcus, the CEO of Facebook’s subsidiary Calibra, reiterated his promise that Libra would not launch until regulators’ concerns were fully addressed. But he stopped short of committing to freezing technical work on the project, much to the chagrin of House Financial Services Committee members.
The committee’s chairwoman, Rep. Maxine Waters (D-Calif.), had previously called for a moratorium, and it was one of the first things she brought up in the hearing, asking the Facebook executive:
“Will you stop dancing around this question and commit here in this committee … to a moratorium until Congress enacts an appropriate legal framework to ensure that Libra and Calibra do what you claim it will do?”
Marcus responded with roughly the same talking point he’s been using for weeks.
“I agree with you that this needs to be analyzed and understood before it can be launched … and this is my commitment to you. We will take the time to get this right,” he said.
Rep. Carolyn Maloney (D-N.Y.) raised the issue during her turn to question Marcus. He started to give a similar answer to what he said earlier, but before he could finish, she cut him off.
“I take that as a no,” she said.
Maloney then asked Marcus if he would at least promise to do a small pilot test of Libra, involving no more than 1 million users and overseen by the Federal Reserve and the Securities and Exchange Commission (SEC), before fully launching the currency. Again, he demurred, saying only that he would commit to working with regulators.
Not that a pilot would be her preferred outcome. “I don’t think you should launch a new currency at all,” Maloney said.
Like the previous day’s Senate Banking Committee hearing, Wednesday’s panel was wide-ranging, with lawmakers grilling Marcus on everything from money laundering to financial stability to whether Libra should be regulated as an exchange-traded fund (ETF) or a bank.
Rep. Brad Sherman (D.-Calif.), perhaps crypto’s loudest Congressional critic, suggested that Libra was somehow more dangerous to America than 9/11.
Comparatively sober colleagues wondered if the project would become “systemically important,” Beltway-speak for “too big to fail.”
The Republicans on the panel were less hostile but nevertheless asked pointed questions.
Rep. Sean Duffy (R.-Wis.), for example, complimented Marcus for Facebook’s innovation but asked if Libra would ban controversial speakers like Milo Yiannopoulos or Louis Farrakhan from using the platform, as Facebook has done in its flagship social network.
“Personally, I believe we shouldn’t be in the business of telling people what they can do with their money,” Marcus responded, adding a caveat that such policies would be up to the governing council of the Libra Association consortium.
AOC weighs in
Rep. Alexandria Ocasio-Cortez (D-N.Y.), the young lawmaker known for her social media savvy and socialist economic positions, brought an interesting bit of monetary history into the discussion.
She suggested that the Libra currency would be a digital version of scrip, a type of private money that corporations once used to pay employees. (Coal miners and loggers, for instance, were paid in scrip they could use to buy goods at the company store.)
Marcus, a former president of PayPal, said he was not familiar with the term.
Ocasio-Cortez also questioned the governance of this aspiring global currency. “Were the members of the association democratically elected? Who picked them?” she asked Marcus.
He replied that the membership is open, subject to certain requirements.
“So we’re discussing a currency governed by private corporations,” Ocasio-Cortez went on. “Do you believe the currency is a public good? Do you believe Libra should be a public good?”
Marcus answered that “it’s not up to me to decide.”
Inside the basket
Marcus also provided more detail than before about the makeup of the basket of fiat currencies that would back Libra.
He told the lawmakers (several of whom were concerned about Libra’s threat to U.S. financial dominance) that the reserve will “mainly” be backed by the U.S. dollar. The Facebook executive later specified that it would be 50 percent dollars, with euros, British pounds and the Japanese yen also included in the collateral.
Regarding Libra’s collateral, Rep. Katie Porter (D-Calif.) seized on another historical comparison: the wildcat banks of the early 19th century, which issued their own notes purportedly redeemable for gold and often failed to deliver on their promises to pay noteholders.
“How is it fundamentally different from wildcat banking?” she asked Marcus.
“A very important difference is the one-to-one reserve,” he said.
Porter then asked what’s to stop the Libra Association from swapping out the reserve from 50 percent greenbacks to, say, 100 Venezuelan bolivares.
Marcus answered that the Libra Association would be regulated. By whom, Porter asked. Marcus said it would be an oversight group of the Group of Seven (G7) nations that he’d mentioned Libra was working with several times before.
The ‘s’ word
After Marcus’ testimony, expert witnesses, including former Commodity Futures Trading Commission (CFTC) chairman Gary Gensler, shared their perspectives with the lawmakers. All were skeptical of the project.
All five raised their hands when Rep. Nydia Margarita Velázquez Serrano (D-N.Y.) asked who agreed Facebook should hold off on launching Libra until all the concerns were resolved. As expected, Gensler argued that Libra is a security and should be regulated as such.
The sole crypto native on the panel, CoinShares Chief Strategy Officer Meltem Demirors, articulated the difference between bitcoin, the original cryptocurrency, and Libra.
While the former is decentralized, the latter is “highly centralized,” she noted; while bitcoin itself is an asset (albeit a digital one), Libra is backed by other assets; and whereas anyone can download the bitcoin software and run a node, the Libra Association is, for the foreseeable future, an exclusive club.
“Libra is not a cryptocurrency … I want to distinguish and draw a very clear line,” Demirors said.
She also likened Libra to a mutual fund with two classes of shares, referring to the fact that in addition to the publicly available Libra currency, there will be a Libra investment token, reserved for accredited buyers, that captures all the interest income from the reserve’s government securities.
Finally, in a historic moment for bitcoin culture, Rep. Warren Davidson (R-Ohio) uttered the word “shitcoin,” almost certainly the first time a lawmaker has done so in the halls of Congress.
Davidson asked what differentiated bitcoin from low-quality knockoffs that carry the epithet. Demirors explained that as a truly decentralized currency with distributed infrastructure, bitcoin can’t be easily and quickly changed by a single party.
It wasn’t the first time the word appeared in the Congressional record, however; crypto-skeptic Nouriel Roubini had used it when testifying in October.
Watch the full hearing here:
Maxine Waters image via House Financial Services Committee