Libra Association Launched Amidst Defections, Congressional ScrutinyMastercard, Visa, PayPal Defect From Facebook's Libra Cryptocurrency
The not-for-profit Libra Association, which would govern Facebook’s new Libra cryptocurrency, launched Monday despite Visa, MasterCard and other major players dropping their participation.
Meanwhile, Facebook CEO Mark Zuckerberg is scheduled to testify before Congress next week to address ongoing concerns about Libra, including protecting privacy.
The Geneva-based not-for-profit Libra Association, which will oversee the virtual currency, launched with 21 members.
In addition to Visa and MasterCard, the defectors include PayPal and EBay, according to the Wall Street Journal. Meanwhile, Wired reports that Stripe, an internet payment platform, and Mercado Pago, one of the biggest payment platforms in Latin America, also dropped out.
The 21 remaining members of the Libra Association include venture capital firms, such as Andreessen Horowitz, as well as companies ranging from Uber and Lyft to the fintech firm PayU and British telecommunications firm Vodafone.
Zuckerberg to Testify
Zuckerberg will testify before the House Financial Services Committee on Oct. 23 about the company's cryptocurrency plans, which have drawn scrutiny not only in the U.S., but also in France, Germany and other counties.
Rep. Maxine Waters, D-Calif., the chairwoman of the U.S. House Financial Services Committee, has repeatedly asked the company to halt its 2020 launch plans, citing concerns about user privacy as well as the lack of details provided by Facebook about exactly how Libra will work.
In July, Facebook executive David Marcus, who's leading the company's effort to launch a cryptocurrency under a new subsidiary called Calibra, testified before the U.S. Senate Banking Committee about the company's plans and what it will do to protect customers' privacy as well as their money (see: Senators Scrutinize Facebook's Cryptocurrency Plans).
During that hearing, Marcus, who is a former PayPal executive, testified that Libra will not function as a "stablecoin" - a digital currency that's designed to minimize volatility by being "pegged" to a single asset. Instead, Libra will not have a fixed value in any single, real-world currency. It will be backed on a one-to-one basis through the Libra Reserve, which will hold "a basket" of currencies in safe assets, such as cash bank deposits and highly liquid, short-term government securities, Marcus said.
The testimony did not satisfy many of the Democratic members of the Senate Banking Committee, who wanted additional details about how Libra would work. They also expressed concerns about the lack of regulation of virtual currencies and how Facebook would benefit from creating its own cryptocurrency.
On Oct. 9, committee members Sen. Brian Schatz, D-Hawaii, and Sen. Sherrod Brown, D-Ohio, sent a letter to several of the firms that have joined the Libra Association, cautioning them that Facebook continues to struggle with issues related to privacy and misinformation and asking them to reconsider their association with Libra.
.@facebook is too big and too powerful, and it’s unconscionable for financial companies to aid it in monopolizing our economic infrastructure.— Sherrod Brown (@SenSherrodBrown) October 12, 2019
I trust others will see the wisdom of avoiding this ill-conceived undertaking.
Facebook Makes the Case
Since it first announced Libra earlier this year, Facebook has tried to portray its cryptocurrency plans as a way to provide banking and financial services to a wide range of customers who might not have access to conventional banking services.
Marcus and other Facebook executives say that this new payment system will be accessible to anyone with a smartphone, with Calibra collecting a fee for transactions.
Marcus also told Congress in July that Calibra's first offering will be a digital wallet for Libra that will be available as a stand-alone app for smartphones as well as through Facebook's Messenger and WhatsApp platforms. He also noted that Calibra is not likely to be profitable at the start and that financial information will not be shared with Facebook, so it cannot be used to target advertising.
Facebook also notes that it plans to work with law enforcement to fight money laundering and other illegal activity that might stem from Libra.
When it announced the Libra project in June, Facebook released a whitepaper that included some technical details about the cryptocurrency, including its use of blockchain - the digital ledger that supports other types of cryptocurrency - to protect transactions and user data. That whitepaper includes details about Move, a new programming language that Facebook developed to create customized "smart contracts" within the blockchain to protect transactions and to help ensure that assets aren't cloned to cut down on fraud and abuse.