Facebook and Libra: A Breach of Trust?
Facebook, a company, not known for its transparency, is again under scrutiny by Congress. This time for proposing to create a new digital currency called Libra. David Marcus, Facebook’s head of digital currency went before both the Senate Banking and House Financial Services Committees in July of last year.
With what is rarely seen these days, in a bipartisan effort, Congress grilled Marcus on Libra’s White Paper — where the company lays out its goals, plans, and developments. The problem was the inconsistency between the White Paper and Marcus’ testimony.
For example, according to Rohan Grey from The Nation, “He denied that Libra would operate as an Exchange Traded Fund (ETF), despite admitting that each unit of currency would be backed by a fixed basket of financial assets — exactly like an ETF. He also claimed Facebook’s spin-off wallet, Calibra, would operate as a licensed money transmitter, even though they are prohibited from investing customer balances in securities, as Libra’s Reserve Fund intends to do.”
By the end of the hearing, Marcus couldn’t even say that one of the White Papers stated goals — doing a public good — would be met. According to Grey, “Likely out of recognition that it would be difficult to make such a bald lie directly to a panel of elected public officials.”
Facebook’s plan for regulatory compliance is underdeveloped, and after questioning it was obvious that “Facebook simply believes it is entitled to create its own global currency because, well, it’s Facebook. Everything else is mere details to be filled in later,” Grey wrote.
Facebook’s plan would be to have Libra sit above any nation’s money and be able to convert into those currencies at any time. However, at what exchange rate? The volatile nature of this ever-changing exchange rate can be expected to hurt those trying to regularly use it — the unbanked people that Facebook claims it’s trying to serve.
In addition, there seems to be a deliberate effort to avoid any government oversight. For example, Libra is organized as a corporation in Switzerland, does not have any democratically elected stakeholders, customer representation, and accountability only to investors. Based on their past actions, it is not a surprise that Facebook has, once again, shown a lack of culpability and transparency.