WASHINGTON — For the second straight day, Facebook's cryptocurrency project commanded much of the attention a congressional hearing with Federal Reserve Chairman Jerome Powell.
Much like his appearance before the House Financial Services Committee, Senate Banking Committee members and Powell himself expressed skepticism about the Libra venture, raising concerns about whether Facebook could meet its stated timetable to launch the currency, about regulators potentially designating Libra as systemically important, and about anti-money-laundering and data privacy issues.
“I’m particularly interested in its implications for customers’ data privacy,” Banking Committee Chairman Mike Crapo, R-Idaho, said at the hearing Thursday. “I look forward to hearing more about how the Fed, in coordination with other U.S. and global financial regulators, plans to engage in important regulatory and supervisory matters with Facebook throughout and after the project’s development.”
Sen. Sherrod Brown, D-Ohio, the ranking member on the committee, said the prospect of a currency controlled by technology companies could pose as great a risk to the public interest as the most significant Wall Street scandals of the last decade. He urged Powell to vet Libra or any similar cryptocurrency thoroughly.
“Today I can add a new worry to the list — private corporations, Facebook in this case, that have gotten carried away with their own power and are now attempting to ape the role of government, creating their own currencies, monetary policy, and payment systems,” Brown said. “So now, in addition to complex and risky Wall Street banks, we face new risks from unregulated, giant tech companies — armed with vast amounts of personal data — with the intent, as far as I can tell, of conducting monetary policy on their own terms.”
During his testimony the previous day, Powell questioned whether Libra could get off the ground as originally conceived. On Thursday, he said that he doubted whether Facebook could launch it within a year as promised.
“I think we need to do a very careful, patient assessment of what the risks really are, and that’s going to take a little bit of time,” Powell said. “The idea that this would be going into implementation within 12 months is, I think, is not going to be proven right. We’re going to take more time than that.”
Powell went on to say that perhaps the biggest challenge for regulators to addressing Libra is that it would potentially touch on a number of regulatory jurisdictions, both at the state and federal level, as well as internationally.
“One of the key issues is there really isn’t a single credible regulatory authority that can be responsible for its oversight and held accountable for its oversight,” Powell said. “It falls into many, many pockets — state, federal, international. I wouldn’t want to prejudge what we do or where we come out — we haven’t even really gotten to the basics yet.”
Sen. Robert Menendez, D-N.J., asked Powell whether the Financial Stability Oversight Council would consider designating Libra — a joint venture between Facebook and other finance and technology companies — as a nonbank Systemically Important Financial Institution. Powell said the council is examining the issue.
“It’s a very good question, I know the FSOC will be focusing on this,” Powell said. “We haven’t had a principals meeting since this was announced. There have been staff-level meetings on it, though.”
Crapo asked Powell whether a widespread adoption of Libra or a similar cryptocurrency could undermine the U.S. dollar’s role as the global reserve currency — a status that enables the U.S. to borrow and finance its debt at attractive rates. Powell said that outcome is not imminent, but possible.
“Things like that are possible, but we really haven’t seen ... widespread adoption,” Powell said. “Bitcoin is a good example — really, almost no one uses bitcoin for payments. They use it more as an alternative to gold, really — it’s a store of value, a speculative store of value.”
Powell said even though the primary function of cryptocurrencies has not yet rivaled that of the dollar, such a scenario in the future — which would have major implications for global commerce — cannot be ruled out.
“People have, of course, been talking about this since cryptocurrencies emerged, but we haven’t seen it,” Powell continued. “That’s not to say we won’t see it, and if we do see it, then yes, we could see a return to an era in the United States were we had many different currencies.”
Much like his appearance before the […]