US Congress stopping Libra cryptocurrency? Is Congress afraid of Libra? Many think so – many are speculating that fear for destabilizing the US economy is one of the reasons Congress has asked Facebook to halt Libra.
Chairperson Maxine Waters went a letter to Facebook and Calibra, the subsidiary developing the Libra digital wallet, asking them to stop developing the cryptocurrency. Some of the reasons were the global dangers of the cryptocurrency.
The letter worries that Libra could compete with the dollar and US monetary policy. It warned:
“This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.”
The 29-page white paper that Facebook published on Libra doesn’t provide nearly enough information, warned the Committee. It called for time to consider the initiative’s implications:
“If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger U.S. and global financial stability.”
US Senators are also worried about Libra. The Senate Committee on Banking, Housing, and Urban Affairs has already written to Facebook, asking for more information. The fear isn’t just US based either – the Financial Conduct Authority has called for more information on behalf of the UK.
So what do we know about Libra that could potentially cause governments to tremble about their monetary policy? Facebook’s white papersays that the cryptocurrency will run on an open source blockchain software developed by Facebook. Financial institutions that are involved already include MasterCard, PayPal, and Visa. Facebook has said that this will be lead by the Libra Association, but has taken a leadership role for now.
The cryptocurrency will start on a “permissioned” blockchain using a known list of organizations that have already paid to play to validate transactions. Within 5 years, however, Facebook claims that they’ll relinquish control and create a “permissionless” blockchain on which anyone can validate. Another feature is Libra’s pseudo-anonymity – addresses don’t have to be linked to their real-world identities.
Libra will rely on a reserve of bank deposits and short-term government securities for its value. This should make it more liquid and less volatile than Bitcoin.
Dr Jay Zagorsky, senior lecturer at Boston University and a Libra sceptic, thinks so. He pointed out to us that US consumers have the faith in financial institutions because they enjoy deposit insurance via the FDIC or NCUA. In the UK, it’s the Financial Services Compensation Scheme. He notes that Libra offers no explicit insurance, but investors might expect the US government to back the system. If Facebook shares this thought, then Congress should have a say in the issue.
The Committee’s letter worries that the government might have no choice but to bail out Facebook if Libra goes off the rails – another instance of “too big to fail”. Another concern? It’s not just US citizens and permanent residents who would use Libra’s currency. If the implication is that the US government will come to Facebook’s aid, why should the US taxpayers bail out international users? Is Congress powerful enough to halt Libra with these concerns?
What do you think? Should Congress be involving itself with Libra? Are you an American Tax Payer? Do you think Libra should be backed by your money in case it goes under? Does Congress have a point? Let us know on our Facebook page!
