When a technology entrepreneur presents a high-profile plan to the House Financial Services Committee to provide low-cost access to financial markets and payments services to billions of people without bank accounts, most people would applaud him as a 21st-century hero. But Mark Zuckerberg is no ordinary tech entrepreneur — he has earned a bad reputation as the monopolist who oversaw egregious violations of user privacy.
It is natural for people to be wary of Zuckerberg’s more recent efforts to bring more of the world’s financial life onto his platform. However, the demonization and obstructionism he is facing in Washington is unfair and irresponsible — regulators shouldn’t sacrifice an initiative with such massive humanitarian benefits just to score a few cheap political points. Washington should step up to the plate, offer the clear regulatory guidance needed to make Zuckerberg’s vision a reality and stop standing in the Libra’s way.
The Libra is a revolutionary new cryptocurrency that promises to provide low-cost access to financial markets and payments systems to the 1.7 billion people without bank accounts. The Libra was originally proposed by Facebook and operates under the legally independent Libra Association, a myriad of nonprofits and payments firms like Mercy Corps and Mastercard that were assembled by Facebook. The Libra would be backed by a basket of traditional currencies like the dollar and the pound that would give it the stability needed to support everyday use. The IT infrastructure supporting the cryptocurrency would be centralized under the Libra Association and capable of supporting 1,000 transactions per second as compared to Bitcoin’s mere seven. The CEO of Mercy Corps endorses Libra’s potential to significantly increase the efficiency, transparency and accountability of foreign aid and the head of the Bank of England foresees healthy competition to the dollar’s hegemony in international trade. The possibilities are endless.
Endless, too, is Washington’s latest trail of criticisms. Responding to the Libra proposal, Sen. Sherrod Brown (D-OH) exclaimed, “Do you really think people should trust Facebook with their hard-earned money? I just think that is delusional.” President Donald Trump tweeted that unregulated cryptocurrencies are too volatile, that they facilitate the drug trade and that the Libra will have little standing. House Financial Services Committee chair Maxine Waters (D-CA) told Facebook to stop the Libra’s development until big questions were answered, arguing that maybe Facebook should be broken up. Congressional House Democrats introduced a “Keep Big Tech out of Finance Act” that would fine large tech companies that offer online platform services $1 million a day for operating digital assets. Congressman Brad Sherman (D-CA) went so far as to say that Zuckerberg “needs to be an advocate for privacy and so he is creating a device which will provide privacy to drug dealers, human traffickers, terrorists, tax evaders and sanctions evaders.”
This opposition is vindictive. For starters, the Libra would not be owned or managed by Facebook — it is under the governance of a legally independent, nonprofit Libra Association based in Switzerland. Calibra, the subsidiary that will manage the Libra, is not allowed to share customer data with Facebook. But unlike Bitcoin, Libra’s servers are centralized under a corporate parent and can thereby accept government oversight of illicit activity on the platform. The currencies backing the Libra would save it from Bitcoin’s volatility, and the lack of cryptocurrency regulation is the product of Washington’s own negligence. Washington’s latest play to the crowd’s prejudices against Zuckerberg to take down the Libra is highly unethical and completely irresponsible.
Still, some of Washington’s concerns are warranted. Treasury Secretary Steve Mnuchin sees a national security threat in the potential for money laundering abuse. Federal Reserve Chairman Jerome Powell has raised valid concerns about terrorism and financial stability. As Facebook itself recognizes, these shortcomings in the latest iteration of Libra should be taken seriously. However, none of these problems are built into Libra’s core concept. These challenges can be addressed by improving Libra’s design and establishing a clear regulatory regime for the new cryptocurrency. These serious challenges from Washington regulators are not reasons to ditch the Libra — they are reasons to improve the Libra. Even still, PayPal, Mastercard and Visa have all left the Libra Association in the face of Washington’s unreserved opposition to Zuckerberg’s latest initiative. Washington regulators should couch their criticisms as constructive partners rather than obstructionist opponents to prevent other key partners from leaving the Libra Association.
While the Libra holds a lot of humanitarian promise for international finance, it will only see the light of day if Washington can find the strength of will to not settle for the easy political points and begin the hard policy work of building a clear regulatory framework for ambitious cryptocurrencies. After all, the stakes are higher than just the Libra: The future of innovation in financial technologies hangs in the balance. The Libra is one of the boldest financial technologies of our time and it is perfectly positioned to execute on its plan to democratize international finance. If the Libra Association cannot succeed in its mission to democratize international finance, it is hard to imagine who can.
