Regulators: What will Facebook's Libra mean for US financial system?

Social media giant launching cryptocurrency

By Clare Duffy, CNN Business
Copyright 2019 CNN

Facebook formally unveiled its highly-anticipated digital currency project called Libra.

WASHINGTON, D.C. - Lawmakers wasted little time making plans to examine Facebook's cryptocurrency.

The US House Financial Services Committee has scheduled a hearing on Facebook's Libra for July 17, one day after a planned Senate banking committee hearing on the digital currency.

Politicians in both the United States and abroad began sounding the alarm just days after Facebook announced its cryptocurrency plans last week. The company says Libra, which will be managed by an independent nonprofit organization, has the potential to become a universally accepted digital currency that could fundamentally change payment systems and improve financial inclusion. But US regulators want to know what that will mean for the American financial system, as well as consumers and investors.

Maxine Waters, the Democrat from California who chairs the House Financial Services Committee, released a statement one day after the Libra announcement asking Facebook to halt its development until regulators have a chance to "take action." On Tuesday, Waters said she is circulating a letter to gain support for her call to pause the project, Reuters reported.

Waters' Republican counterpart, Ranking Member Patrick McHenry of North Carolina, was also among those calling for a hearing on Libra in the days after its official announcement.

"While there is great promise for this new technology in fostering financial inclusion and faster payments, particularly in the developing world, we know there are many open questions as to the scope and scale of the project and how it will conform to our global financial regulatory framework," McHenry said in a statement.

Libra is expected to launch in early 2020, and Facebook's global audience of 2.4 billion positions the currency to quickly gain widespread adoption.

The Senate banking committee hearing will focus on data privacy concerns related to Libra. Given recent user data and privacy scandals at Facebook, lawmakers have expressed concern about the company's ability to handle safely users' financial information. To that end Facebook said it will protect customers' privacy by creating a separate unit within the company, Calibra, to create applications for using Libra. Facebook also said it will not use customers' financial data for ad targeting.

The committees have yet to announce who will testify at either hearing.

Facebook has said it is working with regulators across the globe on the rollout of Libra, and that the company looks forward to answering lawmakers' questions "as this process moves forward." At a press conference last week, Federal Reserve Chairman Jerome Powell said that Facebook has spoken with the agency about its plans for Libra, adding that he is "not too concerned" about cryptocurrencies affecting central banks' abilities to carry out monetary policy any time soon.

The House and Senate hearings appear to be part of a larger effort by lawmakers to better understand and begin to create rules around cryptocurrency, a market that has gone largely unregulated for the past decade. The House Financial Services Committee is also set to hold a hearing Tuesday afternoon on regulation of "the fintech revolution" both in the United States and abroad.

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