In modern realities, almost anyone can launch their own cryptocurrency. There is nothing supernatural in this, and financial regulators rarely turn their attention to such events. But, as you know, each rule has its own exceptions, and the difficult fate of the cryptocurrency project of the social network Facebook has become a confirmation of this. Thus, financial regulators from different countries of the world were unanimous in regard to Libra stablecoin, expressing unequivocal rejection of it. We decided to analyze the current situation and understand exactly what claims officials make to the stable Libra coin.
A bit about Libra
So, the official presentation of the Libra project took place on June 18, 2019. On this day, 27 well-known and fairly large companies (Facebook, eBay, Mastercard, Visa, Uber, Spotify, Vodafone, Coinbase, etc.) announced the creation of an association whose activities will be aimed at creating a new world payment system.
By its nature, Libra is stablecoin, that is, it is understood that the coin rate will not be subject to volatility and therefore it can be used without any problems as a means of payment. The price of Libra will be provided by several of the most popular fiat currencies in the world (US dollar, euro, pound sterling, etc.), as well as securities.
In order to store and transfer Libra digital coins, the associations want to release a Calibra branded wallet, which will subsequently be integrated into Messenger and other Facebook branded products.
Developers dream of creating a payment system within which it will be possible to make financial transfers to any corner of our planet in a matter of seconds, almost for free. Libra members are of the opinion that money transfers should be as simple as sending messages in instant messengers.
But if everything is so wonderful, then why almost all the leading world powers opposed this project? Let's look at this issue together.
Conflict with regulators
It is important to note that at Facebook, the Libra development process was launched long before the official presentation - the first rumors about the crypto from Facebook appeared at the beginning of 2018.
Initially, information was posted on the network that a special secret unit of Project Libra was created within Facebook. Around the same time, Mark Zuckerberg acquired the rights to the Libra trademark from Libra Services, a New York-based company. It became known that Facebook is in talks with venture funds, planning to attract $ 1 billion for the development of the project.
Even based on unconfirmed information about the work on this project, many experts expressed concern about the uncontrolled penetration of the social network into people's private lives. As they say, “there is no smoke without fire” - the fact is that all this happened against the background of repeated accusations of Facebook in unauthorized use of personal data of users.
Talk Libra cryptocurrency the Committee on Banking, Housing and Urban Affairs United States Senate for the first time was in July 2019. It was attended by David Marcus, who was responsible for developing the Calibra wallet, who tried to calm officials and dispel their basic fears. He said that Facebook does not control the project, and an independent organization, the Libra Association, was created in Switzerland to develop it. It includes 27 of the world's largest organizations, including Facebook, and it will be she who will monitor the appropriate level of protection of users' personal data.
However, after some time it became known that representatives of the Libra Association did not even contact the Swiss Federal Commissioner for Data and Information Protection (FDPIC) - they only contacted employees of the Swiss Financial Market Oversight Office (FINMA). It was after this news that the conflict between the young project and the regulators began to gain momentum: the authorities of many countries of the world, the International Anti-Money Laundering Group (FATF), the leaders of the G7 and G20 turned out to be categorically negative towards the project, directly demanding the cessation of its development.
What are regulators afraid of?
French Finance Minister Bruno Le Mayor said he will advocate a complete ban on Libra in the eurozone, as this cryptocurrency can carry risks for the state sovereignty of many countries. Approximately the same opinion was expressed by his colleagues from Germany and the USA.
But why did financial regulators from around the world take up arms against the Libra project, and what are they most afraid of?
To begin with, Facebook has the status of a leading social network in the world - the number of its users is approaching the mark of 3 billion people. That is, the company possesses an enormous amount of personal data of its users, which it has repeatedly used for its own purposes.
Let's recall the case of the illegal transfer of personal data about 50 million accounts of the analytical company Cambridge Analytica. After that, one of the largest fines in history was imposed on Facebook - 5 billion US dollars. But even this rather strict measure does not give any guarantee that such a story will not be repeated in the future.
The second major danger of the project in the eyes of regulators is that, despite the fact that Libra positions itself as a blockchain project, it actually looks quite centrally. Officials from the United States, Germany, France and several other countries believe that, having personal user data, introducing message encryption and anonymous payments, Facebook has the power to create a personal global economy that could potentially destroy the current financial order in the world. And this, in turn, is fraught with the creation of conditions for laundering money obtained illegally, financing international terrorism and other criminal activities.
“We demand that Facebook and partners immediately agree to a moratorium on any work to create Libra and Calibra. These products can lead to the emergence of a completely new global financial system based in Switzerland, and is a rival to US monetary policy and the dollar. This raises serious concerns about personal data, trade, national security, and monetary policy, not only for more than two billion Facebook users, but also for investors, consumers and the wider global economy, ” said Maxine Waters, head of the Financial Services Committee, in an open letter. Congresswoman Carolyn Meloni.
Analysis of the US Congress on Libra
It is noteworthy that representatives of Facebook do not particularly argue with regulators, claiming that they are not going to launch Libra until all disagreements with the government have been resolved to a single point.
And just recently, namely on October 23, 2019, the head of Facebook personally appeared before the US Congress. The event lasted more than six hours, and during this time Mark Zuckerberg was asked many uncomfortable questions, to which he tried to give answers.
In a speech published online before the meeting , Zuckerberg once again assured the public that his company was not going to violate current US law, and therefore would not release Libra without the consent of financial regulators.
During the meeting, authorities reminded the CEO of Facebook of all currently unresolved issues of the company. During the opening speech, the head of the committee, Maxine Waters, noted that it would be better if Facebook at this stage focused on its existing problems, and after solving them, considered it possible to conduct such a large-scale project as Libra. Waters emphasized the fact that antitrust investigations were instituted against Zuckerberg in 47 (out of 50) US states. She proposed dividing Facebook into several smaller companies in order to resolve the monopoly issue.
In general, congressmen prepared a fairly large list of claims, the main ones of which were the following:
- Russian interference in the 2016 presidential election was made possible thanks in part to Facebook;
- placement of incorrect and misleading political advertising;
the presence of child pornography; - discriminatory advertising policy;
In his speech, Mark did not deny the fact that today his company really has a lot of problems. He said that he understood: Facebook can’t be called an ideal company for the implementation of such a project.
“In fact, I don’t know whether Libra will be launched, but I consider it important to try something new and introduce innovations,” he said.
Zuckerberg could not answer many questions of high-ranking officials: in particular, the CEO of Facebook still does not really know how the Libra network will function. Based on the initial idea, the main goal of the project is to create an affordable digital coin, the exchange rate of which will be provided by the currency reserve - the official documentation of the project says that Libra will be tied to a number of fiat currencies. Sources of funds will be both members of the consortium and users of the Libra network. It is noteworthy that the only way you can get a Libra coin is to buy for fiat money. But at the hearing, Zuckerberg noted that the association still does not have a clear idea of the very mechanics of the Libra cryptocurrency. He said that the main goal of the project is not so much to create cryptocurrency as such, but to organize a global global payment system, within which stablecoin will circulate.
According to Zuckerberg, the association is discussing the possibility of creating a digital payment system based on individual sovereign currencies, and not only on a new currency created on the basis of a combination of existing ones.
Benefit for the USA
During a congressional hearing, CEO of Facebook repeatedly emphasized the fact that the development and success of the Libra project is intended only to strengthen US financial leadership.
“Since Libra will be global in nature, we decided that it would be better not to rely solely on the currency of one country. But since we are an American company, and the American economy is the most powerful in the world, it makes sense that the reserve should consist mainly of US dollars. This will strengthen American financial leadership, ”he said.
According to Zuckerberg, in the near future, a project like Libra should be implemented in China, and in order to be competitive and have an advantage over a huge power rushing towards world leadership, the United States needs to develop its universal stablecoin as soon as possible. Recall that after many years of discussion, the PRC government recently publicly announced the seriousness of its intentions regarding the creation of a digital renminbi. It is already known that the project will be handled by both public servants and major private companies.
“While we are discussing these issues, the rest of the world is on the alert. If America does not innovate, our financial leadership is not guaranteed, ”said Zuckerberg.Some congressmen considered the argument for strengthening the American economy not entirely convincing. The fact is that the project itself is not being developed under the jurisdiction of the United States of America. The non-profit organization that is responsible for creating the new payment system is registered in Switzerland, its headquarters are in Geneva. To this remark, Zuckerberg answered the following:
“I think if you are trying to create a global payment system, it makes sense to place an independent association in the country where many international institutions are based.”
The perfect environment for criminals
Perhaps the biggest counterargument of financial regulators regarding Libra is the possible use of stablecoin in organizing illegal activities - traditional with respect to cryptocurrencies in general, due to the global nature and truly gigantic reach of the Facebook audience, in the eyes of the authorities this fear takes on the nature of a global threat.
Zuckerberg answered this attack like this:
“Libra is trying to create a safe, reliable and regulated alternative. The digital payments industry needs it. We will work with the US authorities to meet the same standards that leading financial institutions adhere to, perhaps even more stringent. "He denied information regarding the anonymity of the Calibra digital wallet. In order to use the payment system, users will be forced to go through an identification. At the same time, the Facebook CEO made a reservation, he alone is not entitled to make decisions on behalf of the entire association.
Continuing to answer this question, Zuckerberg said that a special technology will be implemented on the Libra network with which it will be possible to track suspicious user activity. But, unfortunately, no clearer explanations about how this function will work were announced at the meeting.
Results of the meeting
I must say that, although at the end of the meeting Zuckerberg did not succeed in convincing Congress of the exceptional value of his project, he managed to make a favorable impression on a number of politicians. In particular, representatives of the Republican Party expressed a rather flattering opinion about the project. Rep. Patrick McHenry said:
“I have personal doubts about Facebook and Libra, as well as the shortcomings of high-tech companies. However, if history has taught us something, it is that it is better to be on the side of American innovation. ”
The representative of the US Democratic Party, Bradley Sherman after the hearing was more skeptical. He said that Libra will be the best assistant to terrorists, criminals, as well as dishonest entrepreneurs who hide their income. He later said that he has nothing against Facebook, but he is a principled opponent of cryptocurrencies in general.
After the meeting, there were quite a few open questions - Zuckerberg simply did not find answers to them. Now the Libra Association should develop a clear mechanism for the functioning of the future payment system and submit it to the financial regulators for trial.
PS
The latest news on the progress of the Libra case came on November 21 - on that day, a bill was sent to the House of Representatives of the US Congress on the legislative regulation of stablecoins in accordance with the Securities Law. Thus, in the near future, Congress may recognize Libra as a security, which, of course, will not facilitate the fate of the stable coin from Facebook, which is so difficult.