Examining Facebook’s Proposed Cryptocurrency and its Impact on Consumers, Investors, and the American Financial System
Madam Chairwoman and Members of the Committee,
Thank you for the opportunity to testify today on regulatory policy issues. I am Robert Weissman, president of Public Citizen. Public Citizen is a national public interest organization with more than 500,000 members and supporters. For more than 45 years, we have advocated with some considerable success for consumer protections and more generally for government and corporate accountability.
The Committee is performing a vital service by examining Facebook’s proposal to create a private, global currency; and I want to thank you, Madam Chairwoman, for immediately calling for a moratorium on Facebook’s plan and now for prophylactic legislation to avoid the very serious risks posed by Facebook’s scheme.
With dozens of other consumer, privacy, economic security and other organizations, we echoed your call for a moratorium in a July 2 letter which I have attached to this testimony. That letter included a long list of disturbing questions about Facebook’s plans for Libra, its proposed currency, and Calibra, the company’s proposed digital wallet by which consumers and businesses could transact using the Libra currency.
My testimony today builds on that letter but reflects only the views of Public Citizen.
We believe that Facebook should not be permitted to proceed with its plans to create a private, global currency.
To be sure, Facebook will have to overcome serious technological and business hurdles to launch Libra and take its new currency to scale. It is entirely possible, some believe likely, that the company will fail in the effort. But it is also possible that Facebook will succeed in taking the currency to scale; and, from a public policy point of view, we must consider what might happen if Facebook succeeds.
We believe the successful launch of a private, global currency tied to Facebook – the dominant firm in social media with more than two billion users — portends grave risks for the global economy, financial stability, efforts to control illicit money flows, market competition and consumer well-being.
Some of the challenges that Facebook’s proposal presents could potentially be addressed with very aggressive regulation, but there is little reason to believe regulators will be equipped to handle these problems once Libra launches. Other challenges seem inherent in the Libra proposal and appear unsolvable.
In my testimony today, I want to highlight the following points:
- The Libra proposal is overwhelmingly likely to extend and deepen Facebook’s dominance in social media, improperly extend its social media dominance into the global payments market and potentially into the market for real goods as well, exclude and punish competitors, and rip off consumers and deny them the benefit of newly innovative products.
- At scale, Libra will become systemically important, but without the controls on financial institutions – such as deposit insurance – designed to protect against systemic risk.
- As a private, borderless currency, Libra will make it very difficult to ensure consumers are afforded appropriate disclosures, civil remedies, protection against usury, fair access to credit, defense against unfair and deceptive practices, and more. There is good reason to worry that the Libra world will be a welcoming home for hucksters and scam artists.
- No matter what Facebook now promises, Libra and Calibra threaten to make Facebook a corporate surveillance leviathan with no precedent outside the realm of science fiction, giving the company dramatically enhanced power over information flows and our economy, while also potentially worsening the already serious problem of algorithmic racial discrimination.
- The Libra proposal poses a fundamental threat to nations’ ability to maintain their own monetary policy and to take measures to address currency crises.
- Tax cheats, organized criminal enterprises, money launderers and others will rush to take advantage of Libra, and it is not at all apparent how these abuses can be prevented.
I also want to underscore a crucial point that applies across the range of concerns with Libra and Calibra: Policymakers cannot and must not rely on Facebook’s representations about how Libra and Calibra will operate.
Facebook aims to mollify many of the criticisms it anticipated with a series of claims about how its new system will work. For example, to satisfy worries that Facebook and its partners in the Libra Association might create fiat money, Facebook says that for every new Libra purchased, a comparable amount of money in stable currencies will be held in reserve. To dampen concerns about privacy, Facebook says that its Calibra subsidiary will not share data with Facebook (except with consumer consent). But these unilateral, voluntary statements are subject to change at any time. Even if Facebook is being truthful right now about its commitment to these practices, its interest might change in the future – and so too may these voluntary statements.
Weissman’s full testimony is available for download above.