Fed chief flags serious concerns over Facebook's Libra currency

U.S. Treasury Secretary Steve Mnuchin said on Monday that the Treasury department has serious concerns that Facebook Inc's proposed Libra cryptocurrency could be misused for money laundering.
US Federal Reserve chairman Jerome Powell said the massive platform enjoyed by Facebook immediately sets Libra apart from other digital currency projects. The cryptocurrency has drawn scrutiny from policymakers globally.
US Federal Reserve chairman Jerome Powell said the massive platform enjoyed by Facebook immediately sets Libra apart from other digital currency projects. The cryptocurrency has drawn scrutiny from policymakers globally.PHOTO: REUTERS

WASHINGTON • US Federal Reserve chairman Jerome Powell said on Wednesday that Facebook's plan to build a digital currency called Libra "cannot go forward" until serious concerns are addressed, comments that pressured the project and dented the price of the original cryptocurrency bitcoin.

The strong comments from the most powerful United States financial regulator underscored the growing regulatory hurdles facing the proposed cryptocurrency, which has drawn scrutiny from policymakers globally.

"Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability," Mr Powell said during his semi-annual testimony on monetary policy before the US House of Representatives Financial Services Committee.

"I don't think the project can go forward" without addressing those concerns, he added later.

Mr Powell said any regulatory review of the project should be "patient and careful". He noted that existing rules do not fit digital currencies. "It's something that doesn't fit neatly or easily within our regulatory scheme but it does have potentially systemic scale," he said. "It needs a careful look, so I strongly believe we all need to be taking our time with this."

Facebook spokesman Elka Looks said: "We are very much aligned with the (Fed) chairman around the need for public discourse on this.

"This is why we, along with the 27 other founding members of the Libra Association, made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback."

Mr Powell's comments about Libra hit the price of bitcoin, which fell as much as 7 per cent during his three hours of testimony. Bitcoin extended its losses yesterday, dipping almost 8 per cent.

Other major cryptocurrencies, including Ethereum and XRP's Ripple, fell by similar levels.

Late last month, bitcoin climbed back to near US$14,000 and has rallied by more than 30 per cent since June 18, when Facebook announced plans to launch Libra.

ISSUES TO BE ADDRESSED

Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability...

U.S. FEDERAL RESERVE CHAIRMAN JEROME POWELL, testifying about Facebook's proposed cryptocurrency before the US House of Representatives Financial Services Committee.

BROAD IMPLICATIONS

What Facebook is planning raises serious privacy, trading, national security, and monetary policy concerns for consumers, investors, the US economy and the global economy.

U.S. REPRESENTATIVE MAXINE WATERS, who chairs the House banking panel.

Facebook shares, too, took a hit during Mr Powell's appearance before the committee, although they largely recovered that lost ground and closed 1.77 per cent higher at US$202.73 on Wednesday.

It was unclear exactly how the Fed could slow the project if it wanted to, given the murky regulatory treatment of digital currencies, but Mr Powell's perspective looms large. Facebook officials are scheduled to testify about the project later this month in Congress, where lawmakers have raised data privacy concerns.

"What Facebook is planning raises serious privacy, trading, national security, and monetary policy concerns for consumers, investors, the US economy and the global economy," said Representative Maxine Waters, who chairs the House banking panel.

Mr Powell said the Fed has established a working group to follow the project and is coordinating with other central banks across the globe. He also expects a review from the US Financial Stability Oversight Council, a panel of regulators charged with identifying broad risks to the financial system.

Mr Powell noted that he supports financial innovation as long as appropriate risks are identified, but he said the massive platform enjoyed by Facebook immediately sets Libra apart from other digital currency projects.

"Facebook has a couple billion-plus users, so I think you have for the first time the possibility of very broad adoption," he said.

Any problems that could emerge through Libra "would arise to systemically important levels just because of the mere size of Facebook".

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 12, 2019, with the headline 'Fed chief flags serious concerns over Facebook's Libra currency'. Print Edition | Subscribe