Just hours after the initial plans of the Libra cryptocurrency were unveiled by the social media giant, French finance minister Bruno Le Maire insisted that only nations could issue sovereign currencies. He said Facebook should take care not to hurt clients or use Libra for illegal activities. “We will be demanding guarantees that such transactions, for example for terrorist financing, can not be diverted,” he said on the radio.
Facebook revealed its heavily rumored currency and said it would launch with partners like Uber, Visa, Mastercard, and PayPal openly early next year. Libra could open online buying to millions of individuals without access to bank accounts and decrease the cost of transferring cash across boundaries. How appealing an option such as Libra might be to individuals in nations beset with hyperinflation like Venezuela is simple to see.
However, Facebook is already facing scrutiny over its bad privacy record and its dominance in social media, messaging, and associated companies. For the social network, Libra poses new questions: given that cryptocurrency is now slightly regulated, if anything, how will financial regulators oversee Facebook’s plan? And how much more private information does that offer the giant of social media anyway?
The economic sector is heavier regulated than Internet firms— especially in the U.S., where tech firms have frequently been offered free rein. According to Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington, companies producing Libra are in for a “raw awakening” if they expect the same model of light regulation. In the aftermath of the financial crisis of 2008, she expects Libra to fall under U.S. laws. It will rely on what the currency scheme does, she said, which agency will supervise the enterprise.
France’s Le Maire said he requested G-7 heads of central banks to create a report by mid-July outlining guarantees that we need to establish. In the U.S., the head of the House Financial Services Committee wants Facebook to suspend plans for a new currency until Congress and regulators are able to study it more carefully. Rep. Maxine Waters, a California Democrat, said Facebook “continues its unchecked development and extends its reach into the life of its customers” by requesting Facebook to put the Libra currency plans on hold.
Senior Democrat on the Senate Banking Committee said the new digital currency of Facebook would provide unfair competitive benefits for the tech giant in gathering financial transaction data as well as fee control. “Facebook is too large and too strong already,” Ohio’s Sen. Sherrod Brown said. Both Brown and Waters called on financial regulators to look carefully at the new currency project.
In a declaration, Facebook said, “We look forward to answering the lawmaker’s questions as this method moves forward.” Due to the pseudo-anonymous nature of Libra and other digital currencies, one obstacle facing Facebook and its partners is the prospective criminals to use it for money laundering and fraud. Facebook said it would comply with all the economic laws already in place, although it did not offer much information. The business said it would walk individuals through a verification process to make sure they are who they say they are.
However, when it comes to anti-money laundering and identity verification, Facebook is sure to face an onslaught of liability issues, said Nicholas Weaver, a senior investigator at the University of California, Berkeley’s International Computer Science Institute. “They decided to go ahead, I’m amazed,” he said.
Facebook has had questions about the private information of users, particularly since last year’s Cambridge Analytica scandal struck. That seems to be part of Facebook’s reason for creating a non-profit supervisory organization to govern Libra. It also established a subsidiary, Calibra, separate from its first social media company to work on the technology. “We heard loud and clear that you don’t want to merge personal and monetary information,” Calibra head David Marcus wrote to Facebook users on Twitter. “We know we’re going to have to gain your confidence.”
In some respects, Weaver said, privacy is the enemy in the fight against money laundering and other crimes. To maintain them safe and legal, you want to understand who makes transactions, he said. Facebook is “going to access a lot of economic information,” said Aurelie L’Hostis, an analyst for Forrester. “What will they do with that data and what will they put in location to protect that data?” Cryptocurrencies like Libra shop all transactions on a widespread, encrypted ledger known as the blockchain. Libra is intended to make transaction amounts visible, but participants in transactions can be anonymous, at least until they transfer cash into real-world accounts.
Facebook said that by using Calibra’s wallet app, people could keep their individual transactions from appearing on the blockchain, though in that case, Calibra itself would have the data of people. Calibra said that to target advertisements on Facebook, it would not use financial information. It also said that it would not share economic details with Facebook, although there are exceptions that have not been fully spelled out, including circumstances where data sharing would “maintain individuals safe.”