DFC

Memo to the Members of the House Committee on Financial Services regarding the July 17, 2019 hearing entitled “Examining Facebook’s Proposed Cryptocurrency and Its Impact on Consumers, Investors, and the American Financial System.”

A draft bill entitled “Keep Big Tech out of Finance” has surfaced online, allegedly deriving from within the United States House of Representatives Financial Services Committee. The document’s metadata dates it July 12.

“A large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function, as defined by the Fed.”

The IMF is watching the growth of so-called stablecoins closely and today published a paper that identifies their benefits and risks, and highlights some regulatory issues that are likely to emerge.

Japanese authorities have set up a working group to discuss the impact Facebook’s proposed Libra digital coin could have on monetary policy and financial regulation, government sources said, ahead of a G7 finance leaders’ gathering where the topic will be high on the agenda.

Facebook’s proposed creation of Libra is a wake-up call. It makes inescapable the need for rapid, international coordination of financial regulation. Without mechanisms to ensure consistent application of coherent global rules, we may find ourselves in a world full of “low-quality finance havens” that exist to evade financial regulations—just like “tax havens” that exist merely to evade taxes.

Facebook will not launch the cryptocurrency Libra until it has “fully addressed regulatory concerns,” according to David Marcus, the head of Facebook’s Calibra. The remarks are prepared testimony he plans to give tomorrow, in front of the US Senate Banking Committee.

The Senate Banking Committee staff reached out to Caitlin Long pursuant to her recent Forbes article on Libra. Here is her formal written testimony.

“To the extent that Facebook can do this correctly, and can have a payment system correctly with proper AML [anti-money laundering measures], that’s fine. But we have got a lot of work to do to convince us to get to that place.”

The United States Senate Banking Committee has released the opening statements of David Marcus, head of Facebook’s crypto wallet Calibra today, July 15. The statements come ahead of a hearing on the Libra cryptocurrency project tomorrow in the Senate, in which Marcus will testify.

In a wide-reaching series of interviews this week, the Libra Association’s head of policy Dante Disparte, Facebook’s head economist for blockchain Christian Catalini and Facebook’s blockchain project subsidiary Calibra’s VP of product Kevin Weil answered questions about regulation of Libra. Here’s what we learned.

The International Monetary Fund (IMF) has argued that network effects could spark the blaze for the mass adoption of new digital monies.

In its latest paper “The Rise of Digital Money” that marks the launch of a new series Fintech notes, IMF analyses how technology companies are stepping up the competition to credit card companies and large banks.

As currently proposed, the Libra Reserve, in essence, is a pooled investment vehicle that should at a minimum, be regulated by the SEC, with the Libra Association registering as an investment advisor.

Libra is put in perspective by comparing it to like financial instruments, new and old, shedding some light on the purpose, intended user, regulatory issues – and more important, on the path Libra must follow to achieve success. The article also exposes the vast gaping holes in Facebook’s description of Libra.

The authors warn of several financial stability risks that digital currencies pose. Many of their points echo recent comments by two senior Chinese central bank officials. The authors suggest central banks take the first step towards their own digital currency by offering settlement services to e-money providers.

Simply put, the Libra Masterplan is borrowing pages from the Bitcoin playbook and the WeChat playbook both at once. If successful, it makes the Libra accessible to everyone on the planet while offloading the regulatory burden of operating the on- and off-ramps to other business.

Facebook’s David Marcus faced a cacophony of fear, uncertainty and doubt surrounding the social media giant’s plan to launch its digital currency Libra during a Senate hearing Tuesday, following criticisms from a wide range of regulators and lawmakers around the globe.

"For a panel about a proposed cryptocurrency, Tuesday’s Senate Banking Committee hearing was notably light on crypto talk. Bitcoin was barely mentioned during the two-hour session and most of the lawmakers seemed far less concerned with the technology than with who was planning to leverage it: Facebook."

Georgetown Law Professor Chris Brummer’s written statement on Facebook’s cryptocurrency, Libra, will be delivered at 10am, on Wednesday, July 16, 2019.  His testimony is entitled ” 99 Problems.”

"If the ultimate outcome of a private market for money is a monopoly, does it make much difference whether the monopoly is run by a private company versus a public entity? While the former case could lead to economic exploitation based on a market advantage, the threat of potential competition would inhibit this tendency. The latter case, however, invites a more sinister abuse of government power - even tyranny - as government precludes market entry to alternative issuers."

Rep. Alexandria Ocasio-Cortez (D-N.Y.) 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.)

Ocasio-Cortez suggests that Libra being "controlled by an undemocratically selected coalition of largely massive corporations" is problematic because a nation's currency is a "public good" that should be under the purview of a government.

Ocasio-Cortez references previous instances of people being paid in corporate-controlled currency, known as "scrip" -- a very dark history there.

Everyone says Libra should be heavily regulated. But nobody seems to know how—including Facebook. That much was clear in the often muddled questions of legislators who hauled in Facebook executive David Marcus to testify this week, as well as in Marcus’ frequent deflections.

Stablecoins such as Facebook’s Libra will need to be tightly regulated or they could destabilise the global economy and risk being used for money-laundering and the financing of terrorism, according to a working group consisting of senior officials from the G7 central banks as well as the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board.

There’s no real guarantee the Libra Reserve would be stable in practice, especially when broader conditions get rough. The problem, according to numerous experts, boils down to this: What looks safe on paper can hide unpredictable risks.

The European subsidiary of Binance has launched a British pound-pegged stablecoin. Starting today, Binance Jersey has started offering a British pound-backed Binance called GBP Stablecoin (BGBP), The Block confirmed with Binance.

"If Facebook had built an app that just allowed in-app, user friendly payments in USD, I could have gotten behind that. What has been proposed instead is a combination of a licensed version of Liberty Reserve with an ETF, which furthermore proposes to share transactional data with a veritable rogues’ gallery of privacy-abusing tech companies and the VC firms that funded their rise. "

"Phone numbers and email addresses added as profile attributes, those provided for security purposes such as two-factor authentication, those provided to the Facebook Messenger app for the purpose of messaging, and those included in friends’ uploaded contact databases are all used by Facebook to allow advertisers to target users."