Last week, both the US House and US Senate held hearings on Facebook’s proposed Libra cryptocurrency which is envisioned as a global payments platform. David Marcus, Head of Libra/Calibra testified at both hearings.
As Crowdfund Insider has already reported, both the House Financial Services Committee and Senate Banking Committee exhibited a good amount of skepticism and concern regarding Facebook’s intentions. Much of the consternation had to do with Facebook’s past occurrences of abusing user data.
“Technical and regulatory obstacles may slow down Libra’s expansion. Perhaps there will not be enough takers, especially in developed markets with stable fiat currencies. Nonetheless, the Libra has the potential to transition in no time from too small to care to too big to fail.”
While the Senate hearing only engaged Marcus, the House Committee had a second panel where witnesses testified on Libra. If you have the time, the Hearing is worth watching. CI has already posted Prof. Chris Brummer’s testimony, who labeled the Libra White Paper a failure. Today, we revisit Katharina Pistor, a Professor of Law at Columbia University. Pistor’s prepared testimony minced few words as she raised more alarms regarding Libra.
To quote Prof. Pistor:
“In sum, the Libra Association aspires to create a global payment system on a for-profit basis. To achieve this goal, Facebook has chosen a governance structure that is designed not to have effective accountability mechanisms to anyone except the Association’s Founding Members. They would be able to perpetuate their control, if they so wished, and could use their powers to maximize their returns rather than advance the interests of the Libra customers.”
Pistor called Libra a “free-rider” benefitting off of existing government safeguards without contributing to its cause.
“If Libra were to achieve its ideal scale, the network effects of this infrastructure would impede competition for alternatives that might better achieve the laudable goals the Libra White Paper has spelled out,” said Pistor.
Libra, of course, is being pitched as a solution to the underbanked masses. Many people will support the statement that both private and public sector players have failed in addressing existing payment and remittance issues. The question is whether, or not, Libra is the solution to solve this problem and if it will create a “truly inclusive global payment system.”
Central Bank Digital Currencies have been debated for several years now. “CBDCS,” as they are called, may also undermine the traditional banking system as it would remove a vital reason for these very banks to exist.
It is, therefore, time for legislatures in the United States and elsewhere to assess how the goals for such a system might best be accomplished, Pistor explained.
“It is not difficult to imagine a “run on cryptos” or a “run on Libras””
Pistor said that a “run to digits” must be managed, and ultimately it will be the task of regulators and central banks to do so.
It appears that Libra is looking to take advantage of the fragmented regulatory environment while establishing operations in neutral, yet supportive, Switzerland. Pistor believes that regulating Libra may be impossible under current rules.
One distinct benefit of Libra is the fact it has “accelerated” the discussion as to how tech can be better leveraged to provide more/cheaper financial services to the masses. Money and finance is the “central nervous system” of governments. Letting Facebook take over this synaptic need is a frightening thought.
“How this power will be exercised, whose interests it will serve, and how it can be held accountable is of fundamental importance not only for the future of money and finance, but also for democratic self-governance,” Pistor stated.
Read Prof. Pistor’s entire prepared testimony below.
If you have the time, the House Hearing may be viewed here.