In modern realities, almost anyone can launch their own cryptocurrency. There is nothing supernatural in this, and financial regulators rarely turn their attention to such events. But, as you know, every rule has its exceptions, and the difficult fate of the cryptocurrency project of the social network Facebook was a confirmation of this. Thus, financial regulators from around the world turned out to be unanimous in relation to the Libra stablecoin, showing unequivocal rejection of it. We decided to analyze the current situation and understand what kind of claims the officials are making against the Libra stablecoin.
A little about Libra
So, the official presentation of the Libra project took place on June 18, 2019. It was on this day that 27 well-known and fairly large companies (Facebook, eBay, Mastercard, Visa, Uber, Spotify, Vodafone, Coinbase, etc.) announced the creation of an association whose activities will be aimed at creating a new global payment system.
By its nature, Libra is a stablecoin, which means that the rate of the coin will not be subject to volatility and therefore it can be used as a means of payment without any problems. The price of Libra will be backed by several of the most popular fiat currencies in the world (US dollar, euro, pound sterling, etc.), as well as securities.
To store and transfer the Libra digital coin, associations want to issue a Calibra branded wallet, which will later be integrated into Messenger and other Facebook branded products.
The developers dream of creating a payment system within which it will be possible to make financial transfers to any corner of our planet in a matter of seconds, practically free of charge. Members of the Libra association are of the opinion that money transfers should be as easy as sending messages in instant messengers.
But if everything is so wonderful, then why did almost all the leading world powers oppose this project? Let's look into this issue together.
Conflict with regulators
It is important to note that the Libra development process at Facebook was launched long before the official presentation - the first rumors about the crypt from Facebook appeared in early 2018.
Initially, information was posted on the network that a special secret division of Project Libra was created within Facebook. Around the same time, Mark Zuckerberg's company acquired the rights to the Libra trademark from New York-based Libra Services. It became known that Facebook is negotiating with venture capital funds, planning to raise $1 billion for the development of the project.
Even on the basis of unconfirmed information about the work on this project, many experts expressed concern about the uncontrolled penetration of the social network into people's private lives. As they say, “there is no smoke without fire” - the fact is that all this happened against the backdrop of repeated accusations by Facebook of unauthorized use of users' personal data.
Discussion in the U.S. Senate Committee on Banking, Housing, and Urban Affairs first occurred in July 2019. David Marcus, responsible for the development of the Calibra wallet, spoke at it, who tried to calm the officials and dispel their main fears. He stated that Facebook does not control the project, and an independent organization, the Libra Association, was created in Switzerland to develop it. It includes 27 of the world's largest organizations, including Facebook, and it is she who will monitor the proper level of protection of users' personal data.
However, after some time it became known that representatives of the Libra Association did not even contact the Swiss Federal Commissioner for Data Protection and Information (FDPIC) - they only contacted employees of the Swiss Financial Market Supervisory Authority (FINMA). It was after this news that the conflict between the young project and the regulators began to rapidly gain momentum: the authorities of many countries of the world, the International Group on Combating Money Laundering (FATF), the leaders of the G7 and G20 turned out to be categorically negative towards the project, directly demanding the termination of its development.
What are regulators afraid of?
French Finance Minister Bruno Le Maire said he would advocate a complete ban on Libra in the eurozone, as this cryptocurrency could pose risks to the state sovereignty of many countries. Approximately the same opinion was expressed by his colleagues from Germany and the USA.
But why are financial regulators around the world turning against the Libra project, and what are they most afraid of?
Let's start with the fact that Facebook has the status of the leading social network in the world - the number of its users is approaching 3 billion people. That is, the company has simply a colossal amount of personal data of its users, which it has repeatedly used for its own purposes.
Let's recall the case of the illegal transfer of personal data of about 50 million accounts of the analytical company Cambridge Analytica. After that, one of the largest fines in history was imposed on Facebook - 5 billion US dollars. But even this rather strict measure does not give any guarantee that such history will not repeat itself in the future.
The second major danger of the project in the eyes of regulators is that, despite the fact that Libra positions itself as a blockchain project, it actually looks quite centralized. Officials from the United States, Germany, France and a number of other countries believe that by possessing users' personal data, introducing message encryption and anonymous payments, Facebook is able to create a personal global economy that could potentially destroy the existing financial order in the world today. And this, in turn, is fraught with the creation of conditions for laundering illegally obtained funds, financing international terrorism and other criminal activities.
“We demand that Facebook and partners immediately agree to a moratorium on any work on the creation of Libra and Calibra. These products could lead to an entirely new global financial system based in Switzerland, and a rival to US monetary policy and the dollar. This raises serious concerns about privacy, commerce, national security, and monetary policy, not only for the more than two billion Facebook users, but also for investors, consumers, and the broader global economy.” in an open letter from Financial Services Commission Chair Maxine Waters and Congresswoman Carolyn Meloni.
Analysis of the meeting of the US Congress regarding Libra
It is noteworthy that Facebook representatives do not particularly argue with regulators, claiming that they are not going to launch Libra until all disagreements with the government are resolved to the last.
And just recently, on October 23, 2019, the head of Facebook personally appeared before the US Congress. Event more than six hours, during which time Mark Zuckerberg was asked a lot of uncomfortable questions that he tried to answer.
In his published online , Zuckerberg once again assured the public that his company was not going to violate current US law, and therefore would not release Libra without the consent of financial regulators.
During the meeting, officials reminded the Facebook CEO of all the company's unresolved issues at the moment. During the opening speech, the head of the committee, Maxine Waters, noted that it would be better if Facebook focused on its existing problems at this stage, and after they were resolved, considered it possible to maintain such a large-scale project as Libra. Waters emphasized the fact that in 47 (out of 50) US states, antitrust investigations were initiated against Zuckerberg's company. She proposed to split Facebook into several smaller companies in order to solve the monopoly issue.
In general, congressmen prepared a fairly large list of claims, the main ones being the following:
- the intervention of the Russian side in the 2016 presidential election was made possible, among other things, by Facebook;
- placement of incorrect and misleading political advertisements;
the presence of child pornography; - discriminatory advertising policy;
In his speech, Mark did not deny the fact that today his company really has a lot of problems. He said that he understands that Facebook is not currently the ideal company to implement such a project.
“I don’t really know if Libra will launch, but I think it’s important to try new things and innovate,” he said.
Zuckerberg could not answer many questions from high-ranking officials: in particular, the CEO of Facebook still does not really know exactly how the Libra network will function. Based on the initial idea, the main goal of the project is to create an affordable digital coin, the rate of which will be backed by a foreign exchange reserve - the official documentation of the project says that Libra will be pegged to a number of fiat currencies. The sources of funds will be both members of the consortium and users of the Libra network. It is noteworthy that the only way that you can get Libra coin is by buying with fiat money. But at the hearing, Zuckerberg noted that the association still does not have a clear idea about the very mechanics of the work of the Libra cryptocurrency. He said that the main goal of the project is not so much to create a cryptocurrency as such, but to organize a global world payment system, within which the stablecoin will circulate.
According to Zuckerberg, the association is discussing the possibility of creating a digital payment system based on individual sovereign currencies, and not just on a new currency created on the basis of a combination of existing ones.
US Benefit
During a congressional hearing, the Facebook CEO repeatedly emphasized the fact that the development and success of the Libra project is only intended to strengthen US financial leadership.
“Because Libra will be global in nature, we decided it would be best not to rely solely on the currency of one country. But since we are a US company and the US economy is the most powerful in the world, it makes sense for the reserve to be mostly US dollars. This will strengthen American financial leadership,” he stressed.
According to Zuckerberg, in the near future, a project like Libra should be implemented in China, and in order to be competitive and have an advantage over a huge power rushing to world leadership, the United States needs to develop its universal stablecoin as soon as possible. Recall that after many years of discussions, the Chinese government recently publicly announced the seriousness of its intentions regarding the creation of a digital yuan. It is already known that both government officials and the largest private companies will be involved in the project.
“While we are discussing these issues, the rest of the world is not asleep. If America does not innovate, our financial leadership is not guaranteed,” Zuckerberg said.
Some congressmen found the argument in favor of strengthening the American economy not entirely convincing. The fact is that the project itself is not being developed under the jurisdiction of the United States of America. The non-profit organization responsible for creating the new payment system is registered in Switzerland and is headquartered in Geneva. To this remark, Zuckerberg responded with the following:
"I think if you're trying to create a global payment system, it makes sense to have an independent association in a country where many international institutions are based."
Ideal environment for criminals
Perhaps the biggest counterargument of financial regulators regarding Libra is the possible use of a stablecoin in organizing illegal activities - traditional in relation to cryptocurrencies in general, due to the globality and truly gigantic coverage of Facebook's audience, in the eyes of the authorities, this fear takes on the character of a global threat.
Zuckerberg responded to this attack like this:
“Libra is trying to create a safe, secure and regulated alternative. The digital payments industry needs it. We will work with the US authorities to meet the same standards as leading financial institutions, perhaps even more stringent.”
He denied information regarding the anonymity of the Calibra digital wallet. In order to use the payment system, users will be forced to go through identification. At the same time, the Facebook CEO made a reservation, he alone has no right to make decisions on behalf of the entire association.
Continuing to answer this question, Zuckerberg said that special technology will be implemented in the Libra network, with which it will be possible to track suspicious user activity. But, unfortunately, there were no clearer explanations on how this function will work at the meeting.
Results of the meeting
It must be said that, although following the meeting, Zuckerberg failed to convince Congress of the exceptional value of his project, he nevertheless managed to make a favorable impression on a number of politicians. In particular, representatives of the Republican Party expressed a rather flattering opinion about the project. Rep. Patrick McHenry said:
“I have personal doubts about Facebook and Libra, and the shortcomings of high-tech companies. However, if history has taught us anything, it's that it's better to be on the side of American innovation."
US Democratic Party spokesman Bradley Sherman was more skeptical after the hearing. He said that Libra would be the best assistant for terrorists, criminals, and dishonest entrepreneurs who hide their income. He later said that he has nothing against Facebook, but he is a principled opponent of cryptocurrencies in general.
After the meeting, quite a few open questions remained - Zuckerberg simply did not find answers to them. Now the Libra Association must develop a clear mechanism for the functioning of the future payment system and submit it to the judgment of financial regulators.
PS
Latest update on the progress of the Libra case November 21 - On this day, a bill was filed in the US House of Representatives to regulate stablecoins in accordance with the securities law. Thus, Congress may soon recognize Libra as a security, which, of course, will not alleviate the already difficult fate of Facebook's stablecoin.
Source: habr.com