By Jeff Horwitz and Parmy Olson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 19, 2019).
Facebook Inc. unveiled plans to launch a cryptocurrency in a
move that could diversify its business from advertising while
expanding into financial services long dominated by Wall
Street.
The cryptocurrency, called Libra, will be a secure
blockchain-based payment system backed by hard assets and designed
for ordinary users, making it among the boldest efforts yet to
bring digital currencies into the mainstream.
Facing continuing scrutiny of its privacy practices, Facebook
introduced Libra in a manner that seemed intended in part to head
off potential regulatory concerns. It said it is creating a
subsidiary, called Calibra, that would be governed with the help of
external partners, to ensure "the separation between social and
financial data." Calibra will offer a crypto wallet -- a digital
app that can be used to pay for items online and send money --
using Libra.
Facebook on Tuesday named a series of corporate partners --
including financial-services heavyweights Mastercard Inc. and
PayPal Holdings Inc. and tech giants Uber Technologies Inc. and
Spotify Technology SA -- that it said would help it create a
"secure, scalable and reliable" cryptocurrency. The Wall Street
Journal reported in May that the initiative involved developing a
"stablecoin" -- a digital asset backed by a basket of global
currencies or other investments -- unlike other cryptocurrencies,
such as bitcoin, whose values can fluctuate sharply.
Facebook, which has worked quietly on blockchain-based payments
for more than a year in an effort led by former PayPal President
David Marcus, said Libra would be available by 2020 on its
Messenger and WhatsApp services and as a stand-alone app. The
company has broad ambitions for the project and its use by the
social platform's 2.4 billion monthly active users. Facebook
envisions Libra being used to make everyday financial transactions
like paying bills, making retail purchases and paying for public
transport.
One of the Libra network's early goals would be to provide basic
financial services to people around the world who lack bank
accounts and to save some of the $25 billion "lost by migrants
every year through remittance fees," the company said in a blog
post Tuesday.
Early reactions from bank analysts covering Facebook were
enthusiastic, in part because the Libra project would help the
company move away from a near-complete reliance on targeted
advertising. Though highly successful, that business model has
drawn criticism for Facebook's privacy practices and its handling
of misinformation on public platforms. The company is shifting
toward more private communications, and payments could provide a
way to make money in those channels, though Facebook didn't specify
how it expects to generate revenue from Libra.
JPMorgan's Doug Anmuth said Libra would help Facebook diversify
its revenue sources "while also empowering billions of people." In
a note to clients after Facebook's Libra disclosures, Royal Bank of
Canada analysts Mark Mahaney and Zachary Schwartzman described the
project as the foundation for fundamental changes to the digital
consumer economy.
"In terms of scale and importance, we believe this new financial
infrastructure could be viewed similar to Apple's introduction of
iOS to developers over a decade ago," they said.
Others questioned Libra's potential advantages over other
digital-payments services.
"What makes this better than what exists?" asked Raina Haque, a
professor at Wake Forest University's law school who said it is too
early to say whether Facebook's plan threatens the existing global
payments industry.
A significant portion of Libra's fate will rest with global
policy makers.
French Finance Minister Bruno Le Maire said that Facebook is
free to issue a transaction tool but that Libra shouldn't replace
sovereign currencies, citing a risk that such a currency could be
used to finance terrorism.
"Sovereignty must remain in the hands of states, not private
companies that respond to private interests," he said on French
radio Tuesday. Mr. Le Maire said he would ask the central bank
governors of G-7 countries to prepare a report on what guarantees
to demand from Facebook to avoid such risks ahead of a meeting of
finance ministers planned for mid-July in Chantilly, north of
Paris.
U.S. lawmakers called for hearings on Facebook's cryptocurrency
plans, and Democrats and Republicans on the House Financial
Services Committee raised questions about the move. The panel's
chairwoman, Rep. Maxine Waters (D., Calif.), asked the social-media
company to put the project on hold "until Congress and regulators
have the opportunity to examine these issues and take action."
Much of Libra's future could also depend on which U.S.
regulatory bodies claim authority to police it.
The Securities and Exchange Commission, Wall Street's main
overseer, has emerged as the most robust U.S. regulator of
cryptocurrency projects, but its authority covers only assets that
are deemed to be securities. That typically means investments that
are made with the expectation of profits. The investment's value
also has to be tied to an enterprise that backs it and sought to
raise money by selling it.
The Commodity Futures Trading Commission also polices
cryptocurrencies, focusing on those that are deemed commodities,
although that authority is limited in the spot market to going
after fraud or manipulation. The CFTC has extensive regulatory
authority over derivatives such as currency futures and swaps.
To the extent Facebook can persuade Washington that Libra is a
new type of currency, it could be exempt from SEC supervision,
whose oversight model involves elaborate disclosures to investors
and collaboration with regulated market gatekeepers such as
auditors, securities lawyers and broker-dealers.
Facebook employees met with SEC Chairman Jay Clayton and some of
his staff members several months ago. They discussed
cryptocurrencies, among other topics, but didn't address Libra
specifically, according to a person familiar with the matter.
Facebook executives have also sought a meeting with the chairman of
the U.S. Commodity Futures Trading Commission, Christopher
Giancarlo. The meeting hasn't happened yet, a person familiar with
the matter said.
Should it act as a money transmitter, Facebook would have to
comply with U.S. anti-money-laundering rules, verifying who is
sending transactions through its platform and reporting suspicious
transactions to the government. It also would have to form an
internal anti-money-laundering program, train key personnel and
conduct independent compliance reviews. The Treasury Department's
Financial Crimes Enforcement Network has said those requirements
extend to cryptocurrency companies.
How Libra would differ from existing digital money-transfer
technologies remains unclear. At least initially, it will neither
be fully decentralized nor fully anonymous, two of bitcoin's
defining anarchic features.
While both bitcoin and Libra are essentially digital versions of
cash designed to allow users to exchange value online, there are
major differences. Facebook is looking to build a payments network
around Libra by creating an online ecosystem on which users can buy
things and pay each other. Bitcoin, though initially conceived as a
payment mechanism, has evolved into a kind of digital gold used to
store value rather than exchange it.
Libra also will be set up to avoid the wild price swings that
have plagued bitcoin. It will be backed by a basket of global
currencies and other stable assets, making it far less likely to
experience the volatility of other cryptocurrencies that aren't
pegged to anything.
--Sam Schechner, Lalita Clozel and Paul Vigna contributed to
this article.
(END) Dow Jones Newswires
June 19, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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