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Confusion on Capitol Hill: How Zuckerberg’s defence of Libra went down

Posted: 24 October 2019 6:58 am
News

Mark Zuckerberg weathered a torrent of questions from senators, but they weren't necessarily about Libra – or cryptocurrency at all.


Quick facts

  • Key areas of concern around Libra are the incorporation of the association in Switzerland outside of US regulators, challenging the dominance of the US dollar, and KYC and AML enforcement.
  • Many senators used the hearing as a chance to target Mark Zuckerberg with questions about Facebook entirely off-topic and unrelated to Libra.
  • Zuckerberg said that if they cannot reach an agreement with US regulators, then Facebook will step back from the project. However, the independent Libra Association may choose to continue.

Around the one hour mark into the Senate Banking Committee hearing into the upcoming Libra digital currency, a Senator questions Mark Zuckerberg about censoring anti-vaxxers on Facebook.

"Are you 100% confident that vaccines don't present any threat to anyone on this planet?"

This bizarre question was just one of many that demonstrated that not all senators were here for the same reason.

Amongst these were questions about Facebook's civil rights record, targeted advertising, election rigging and even one Republican asking for assurance that ads for Trump's re-election would be permitted on the platform.

Senator Sherman tried to right the ship and bring it back on topic by asking, "If we make drug dealers 10% more effective, how many deaths is that?"

However, the implication that any and all digital currencies are used in the sale of drugs – even ones managed by consortiums of reputable companies that currently make up the Libra association – demonstrates the extreme level of misunderstanding by US senators, that continues to plague the Libra project.

Following Zuckerberg's opening statement – which was released ahead of time and analysed in this article – senators from all sides of the aisle were given five minutes in which to question Zuckerberg about Facebook's involvement with Libra.

By the end of the four-hour-long session, it appeared that most saw this as a chance to get on a soapbox and air their political, electoral or even personal grievances with "the richest man in the world trying to hide behind the poorest people in the world" (as one congressman called him).

Things heat up

Fortunately, there were a handful of Senators that appeared to remember what the hearing was about.

Although much like the previous senate hearing into Libra with Facebook's Calibra wallet lead, David Marcus, there was great confusion between the independent roles of Facebook, the Libra Association, and the Calibra wallet in the development of the Libra digital currency.

Chairwoman Maxine Waters was not one of them.

She opened the session with a salvo of accusations that asset Facebook's existing and historical issues are a good reason to halt production of Libra immediately until assurances can be made. She goes on to target the currency itself, claiming it could "challenge the US dollar" and that creating a digital currency, in general, creates risks relating to:

Privacy, trading risks, national security, monetary policy, and the stability of the global financial system.

This was followed by an outright request by another Democrat, Congresswoman Nydia Velázquez, for Facebook to impose a moratorium on any further Libra development.

She quotes Facebook's own slogan from its startup phase "'move fast, break things" and then says "we do not want to break the international monetary system" finishing with mention of the recent G7 report that stablecoins are not ready for the global economy yet.

Zuckerberg declines the moratorium.

Although later in the session he does make it clear that if Facebook cannot receive permission from US regulators to operate as part of the Libra Association in the creation of the Libra, or the Calibra wallet, then it will step back from the project altogether. He also implies that the Libra Association, which is now down to 21 members and based in Switzerland, could continue with the project if it so chose.

The location of the Libra Association in Switzerland becomes the next point of contention and one that requires careful answering by Zuckerberg.

Senators McHenry and Huizenga lead the charge here, asking why the foundation is headquartered in the politically neutral nation if it intends to comply with all local regulatory laws in the US and abroad.

Zuckerberg replies to McHenry's concerns carefully:

We were trying to set up a global payment system. Switzerland is where a lot of international organizations are. Switzerland has certainly been forward-leaning on wanting to work through systems like this, but one of the things I want to be clear on is that the Libra Association is independent and we do not control it.

When asked by Huizenga, "Will you consider operating Libra in the US instead of Switzerland?" Zuckerberg again reminds the committee that Facebook and the Libra Association are not the same things, and that Facebook is already deeply entrenched in the US.

A permanent fixture of the four-hour-long questioning was around the threat of Libra to the US dollar, almost as if Bitcoin, stablecoins and thousands of other cryptocurrencies did not exist.

These concerns come in various shapes and sizes, with no clear consensus on how exactly a digital currency pegged to a basket of fiat currencies, including the US dollar, would damage the US dollar.

Zuckerberg is quick to address this concern, saying, "Because the reserve will be mostly US dollars, I believe the Libra could extend the US's financial leadership in the world."

He later specifies that every Libra will be physically backed by an equivalent amount of fiat currencies and financial assets, unlike fractional reserve banking, which currently dominates the global financial system. Since the elimination of the gold standard, fractional reserve banking has come under criticism for a variety of reasons, with cryptocurrencies being seen as a solution system.

So the thought of a new, global currency, that offers a better solution than fractional reserves might be the real threat to Capitol Hill after all.


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Disclosure: The author holds BTC, ETH, BNB, LINK, NEU, XRP, VET, USDT, POWR, ICX, ETC, LRC, WAN, XMR, BMX, GRIN, NXS, QASH, NEO, BEAM at the time of writing.

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