Facebook’s cryptocurriencies stumbles in front of the congress

Legislators expressed serious concerns about Libra, the cryptocurrency that will be the basis of Facebook's financial services

A screen the reads "If Consumers Use Libra, Who Would They Be Dealing With?" is displayed with questions on potential user actors as David Marcus, CEO of Facebook's Calibra digital wallet service, foreground, appears before a House Financial Services Committee hearing on Facebook's proposed cryptocurrency on Capitol Hill in Washington, Wednesday, July 17, 2019. (AP Photo / Andrew Harnik)

LatinAmerican Post | Pedro Bernal

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Last week's Tuesday and Wednesday, Facebook was again before the US Congress to address the doubts of the legislatures about the new financial services the social network plans to offer, including its Libra cryptocurrency. Surely it will be the first of many, because both Democrats and Republicans were dissatisfied with the answers given by Facebook spokesman, David Marcus.

Leer en español: La criptomoneda de Facebook tropieza frente al congreso

Marcus is CEO of the adjunct company created by Facebook for the administration of Libra, called Calibra, and was the one who faced the questions of the Committee on Financial Services of the House of Representatives and the Banking Committee of the Senate.

Between the last appearance of Facebook in the congress, after the debacle of Cambridge Analytica, and several accusations of inappropriate handling of the information of its users, the government of the United States was reluctant to the new request of Facebook to also open to handle the finances of its users. Before the doubts, Marcus was emphatic in that Facebook will not carry out the launching of Libra without first having the approval of the congress.

Read also: Libra: this is how Facebook plans to introduce a cryptocurrency

Trust is the problem

The keyword to interpret the two days of hearing is 'trust'. During the first day, the word was mentioned, on average, every two minutes, for a total of 69 times during the 220 minutes that the hearing lasted.

In most cases, the word was pronounced by several senators as a question, and in a minority by Marcus as a defense.

The members of the congress may not know much about cryptocurrencies, but especially within the committees that dealt with the case, they definitively know about banking and finance. That's why they know that trust is the foundation of any banking system, and even more, trust is the key behind all the currencies in the world. We all agree on the value of a dollar bill because we trust its ability to retain value and because we trust its ability to be received by any person or company for the same value.

"Facebook does not deserve our trust. Now they ask people to entrust their salaries, demonstrating an enormous amount of arrogance," said Sen. Sherrod Brown, an Ohio Democrat, who led the criticism against the technology giant.

"I do not trust Facebook and it's because of its repeated violations of the privacy of its users (…) So I do not trust you. Instead of cleaning up their act they are launching directly into another business model with Calibra," said Senator Martha McSally, Republican of Arizona.

"Mr. Marcus, basically, the common theme in your answers to my colleagues, particularly in data privacy is 'trust us'. Well, trust is something that is earned, and Facebook certainly has not earned it," added Senator Bob Menéndez, Democrat of New Jersey.

That is why the 69 occasions in which the word was brought to light show the biggest obstacle to be resolved for Facebook in the face of a future audience: how can we generate trust?

The end of the road?

In his meeting with the congress, Marcus faced an almost unanimous rejection, a considerable obstacle in the way to seek the blessing of the government to move forward with Libra. In principle this experience was so bad, that it would not surprise a considerable delay of the plan or even its cancellation during the next months.

"This is not going to happen next year, especially since it's an election year. It is very difficult to see how any regulator would approve this project under the political pressure in which they find themselves" commented Ben Koltun, senior analyst at Beacon Policy Advisers to the Financial Times newspaper.

Outside of the congress, the response has not been favorable either. President Donald Trump spoke out against Libra and demanded that he must submit to all current banking regulations to exist.

Treasury Secretary Steve Mnuchin and Federal Reserve Director Jerome Powell also expressed their rejection, citing a G7 report that warns of 'serious risks' that could be released from Libra, including money laundering and financing of terrorist groups.

On the other hand, the decision to establish the headquarters of Calibra in Switzerland only helped multiply the suspicions among the congressmen. "You have to ask yourself if the decision to choose Switzerland as headquarters was a premature mistake, because it has brought perception problems. It does not look good when you put this operation abroad, beyond the reach of US regulators in even the European Union, "said Garrick Hileman, a researcher at the London School of Economics at the Financial Times.

Senator Maxine Waters, a California Democrat, gave voice to these concerns at the congress, saying that Switzerland has a record as "a monetary paradise for criminals and corporations without scruples."