Facebook launches crypto project but obstacles abound

Written on the 19 June 2019 by Katie Paul, Anna Irrera, Pete Schroeder (REUTERS)

Facebook launches crypto project but obstacles abound

Facebook Inc announced ambitious plans on Tuesday to launch a new global cryptocurrency called Libra, part of an effort to expand into digital payments that immediately raised privacy concerns.

The social networking giant has linked with 28 partners including Mastercard, PayPal and Uber to form Libra Association, a Geneva-based entity governing the new digital coin, according to marketing materials and interviews with executives. No banks are yet part of the group.

To facilitate transactions, Facebook also created Calibra, a subsidiary that will offer digital wallets to save, send and spend Libras. Calibra will be connected to Facebook messaging platforms Messenger and WhatsApp.

The whole system is scheduled to launch in the first half of 2020.

Facebook executives and others associated with Libra have big aspirations. They hope it will not only power transactions between established consumers and businesses globally, but offer unbanked consumers access to financial services for the first time.

Facebook is also betting Libra can squeeze more revenue out of its suite of apps, something already happening on Chinese social networks like WeChat.

Representative Maxine Waters, chairwoman of the U.S. House Financial Services Committee, called for Facebook executives to testify before Congress and asked the company to halt development of Libra until lawmakers and regulators have reviewed the project.

"With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users," Waters said in a statement.

Other regulators, lawmakers and government officials around the globe also quickly issued critical statements. France's finance minister said he had asked central bank heads from G7 countries to write a report on the project by mid-July. 

A Facebook representative said the company looked forward to answering lawmakers' questions.

Before Tuesday's announcement, Facebook was already facing significant backlash over mishandling user data and not doing enough to prevent Russian interference in the 2016 U.S. presidential election. Those issues have led some government officials to call for Facebook to incur penalties, or be forcibly broken up.

Kevin Weil, who runs product for the Libra initiative, said Facebook hopes it can bring global regulators to the table by publicizing its plan.

"It gives us a basis to go and have productive conversations with regulators around the world," he told Reuters. "We're eager to do that."

The name "Libra" comes from Roman weight measurements, the astrological sign for justice and the French word for freedom, said David Marcus, who heads the project for Facebook.

"Freedom, justice and money, which is exactly what we're trying to do here," Marcus said in an interview.

Facebook shares closed up 0.1%.

US Lawmakers establish roadblocks for Facebook crypto launch

A leading U.S. House lawmaker on Tuesday called on Facebook Inc to halt development on its new cryptocurrency and for company executives to testify before Congress, adding to global concerns about what the digital currency could mean for data privacy and security.

Maxine Waters, who chairs the House Financial Services Committee, said Facebook should halt development of the product, dubbed Libra, until Congress and regulators can review the issue, and called on company executives to testify before Congress.

"Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data," she said in a statement. "With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users."

Her comments came after Representative Patrick McHenry, the senior Republican on her panel, also sought a hearing on Facebook's new initiative. A Facebook representative said the company looked forward to answering lawmakers' questions.

Facebook's announcement was met with immediate backlash from U.S. lawmakers and regulators across the globe, who are concerned that Facebook is already too massive and careless with users' privacy.

"Facebook is already too big and too powerful, and it has used that power to exploit users' data without protecting their privacy. We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight," said Senator Sherrod Brown, the top Democrat on the Senate Banking Committee, in a statement.

U.S. Senator Mark Warner, a Virginia Democrat who also sits on Senate Banking Committee, expressed concern that through Libra, Facebook was using its scale in social networking to achieve dominance in adjacent markets like mobile payments.

French Finance Minister Bruno Le Maire called for more regulation of tech companies.

"This instrument for transactions will allow Facebook to collect millions and millions of data, which strengthens my conviction that there is a need to regulate the digital giants," he said in an interview on Europe 1 radio.

But Bank of England Governor Mark Carney said he had an "open mind" on the potential utility of the product, while warning it could face strict regulation.

Facebook has engaged with regulators in the United States and abroad about the planned cryptocurrency, company executives said. They would not specify which regulators.

A U.S. regulatory source briefed on the matter said Facebook had been in communication with U.S. regulators but added it was still unclear how the currency would be structured and whether it would directly fall under any existing U.S. regulatory regimes.

Switzerland's financial watchdog said it was in contact with the initiators of the Libra project but declined to comment on whether it was obtaining specific regulatory permission or status.

Markus Ferber, a senior German lawmaker in the European parliament, said in a statement that Facebook's new coin should put "regulators on high alert" and called on the European Commission to start work on regulatory framework for virtual currencies.

Main photo credit: REUTERS

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Author: Katie Paul, Anna Irrera, Pete Schroeder (REUTERS)

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