The US Congress has asked Facebook to pause development on its Libra cryptocurrency until lawmakers have had more time to investigate the ramifications of the company’s actions.
In a letter from the Democratic heads of the house committee on financial services and its subcommittees, the legislators ask the company to “immediately cease implementation plans”.
“Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action,” the letter says.
“During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so risks a new Swiss-based financial system that is too big to fail.”
What is Libra, Facebook’s new cryptocurrency?
Facebook says Libra is a ‘global currency and financial infrastructure’ – a digital asset built by Facebook and powered by a new Facebook-created version of blockchain, the encrypted technology used by bitcoin and other cryptocurrencies. The name Libra comes from the basic Roman measurement of weight. The abbreviation lb for pound is derived from Libra, and the £ symbol originally comes from an ornate L in Libra.
Facebook claims it wants to reach the 1.7 billion people around the world who do not have access to a bank account.
Facebook is likely to run into regulatory hurdles and antitrust concerns. The currency will be serviced by a collective of companies called the ‘Libra Association’. It functions as what is known as a ‘stablecoin’, pegged to existing assets like the dollar or euro, in the aim of making it less subject to the volatility that many cryptocurrencies experience.
The Libra Association is described by Facebook as an independent, not-for-profit organisation based in Switzerland. Within the Libra Association will be a governing body called the Libra Association Council, comprised of a representative of each member of the association, which will vote on policy and operating decisions.
Facebook claims that although it created the Libra Association and the Libra Blockchain, once the currency is launched in 2020 the company will withdraw from a leadership role and all members of the association will have equal votes in governance of Libra. The companies who contributed a minimum of $10m(£8m) to be listed as founding members of the Libra Association include tech companies such as PayPal, Ebay, Spotify, Uber and Lyft, as well as financial and venture capital firms such as Andreessen Horowitz, Thrive Capital, Visa and Mastercard.
When the cryptocurrency launches, users can download Calibra, a digital wallet, that will allow them to send it to anyone with a smartphone. It will be available in Messenger, WhatsApp, and as a standalone app.
It is not clear which countries the coin will launch in first, though Facebook said ‘almost anybody’ in the world with a smartphone will be able to download the app.
in San Francisco
Although Facebook has spearheaded the development of Libra, and will be creating the first consumer “wallet” for the currency through its Calibra subsidiary, the actual development of the service will be handed over to the Libra Association, an arms-length organisation headquartered in Geneva, Switzerland.
The association is run nominally by a consortium of Libra’s initial backers, including Visa, Lyft, Vodafone and Coinbase, of which Facebook is just one partner among many. But in practice, the social network retains a significant amount of control, even paying the salaries of the body’s “roughly half-dozen employees”, according to the industry news site the Information.
The duration of the moratorium on development need not be that long: the congressional committee is convening a full hearing examining Libra on 17 July.
But the letter, which was delivered to Mark Zuckerberg, Sheryl Sandberg, and Libra’s chief executive, David Marcus, suggests the company is in for a bumpy ride when the hearing takes place.
Why Facebook’s Libra currency gets the thumbs down | Joseph Stiglitz
“The scant information provided about the intent, roles, potential use, and security of the Libra and Calibra exposes the massive scale of the risks and the lack of clear regulatory protections,” it says. “If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger US and global financial stability.
“These risks are even more glaring in light of Facebook’s troubled past, where it did not always keep its users’ information safe. For example, Cambridge Analytica, a political consulting firm hired by the 2016 Trump campaign, had access to more than 50 million Facebook users’ private data which it used to influence voting behaviour.”
Maxine Waters, the chair of the house committee on financial services, has been one of the leading congressional Democrats calling for the impeachment of Donald Trump. “Ninety per cent of the calls and mail I’m receiving in my office support impeachment of Trump and so do I,” she wrote in April.