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By Dave Michaels
WASHINGTON -- Facebook Inc. began to learn how Washington will check its push into digital currencies, with leaders of the Federal Reserve and an influential Senate committee saying they will scrutinize its rollout.
Fed Chairman Jerome Powell on Wednesday said the central bank has "significant input into the payments system," the e-commerce network that Facebook is seeking to disrupt with its Libra currency. Banking regulators also can enforce anti-money-laundering controls on such businesses, Mr. Powell told reporters.
"We will wind up having quite high expectations from a sort of safety and soundness and regulatory standpoint if they do decide to go forward with something," Mr. Powell said at a news conference after the Fed held its benchmark interest rate steady.
Facebook this week unveiled its plans for the Libra "stablecoin" -- a digital asset backed by a basket of global currencies or other investments. The digital money is supposed to make it easier to make online payments, particularly for people around the world who lack bank accounts, Facebook said.
Mr. Powell said Facebook has met with the Fed about the project, along with regulators around the world. "It's something we're looking at," he said. Mr. Powell said Fed officials aren't worried that Libra will displace national currencies or make it harder to implement monetary policy. "I think we're a long way from that," he added.
A Facebook spokeswoman declined to comment.
Cryptocurrencies have become a puzzle for global regulators, with agencies grappling with rules written decades ago to oversee market intermediaries that don't exist in cryptocurrency networks. In the U.S., the Securities and Exchange Commission has asserted authority over cryptocurrencies it sees as securities, or investments made with the expectation of profits. Other agencies are charged with enforcing anti-money-laundering laws that apply to money transactions.
Facebook's Libra would be run at a new subsidiary, called Calibra, that would be governed along with external partners, including companies such as Mastercard Inc. and PayPal Holdings Inc. and tech giants Uber Technologies Inc. and Spotify Technology SA.. It would operate using a crypto wallet, or digital app that can be used to pay send money and make payments, using the cryptocurrency.
Facebook separately is expected to face critics on Capitol Hill, where the Senate Banking Committee plans to hold a hearing next month to probe its venture. Sen. Mike Crapo (R., Idaho) announced that his panel will examine the project on July 16.
The committee's quick move to stage a hearing indicates "there will be significant political opposition" to Facebook's involvement with Libra, Cowen & Co. analyst Jaret Seiberg said. "We believe the initial hearing is critical for Facebook and its digital currency expectations," he added.
A hearing is also likely in the House, where House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) has asked Facebook to put Libra on hold until regulators and lawmakers decide how to oversee it.
"Regulators should see this as a wake-up call to get serious about the privacy and national security concerns, cybersecurity risks, and trading risks that are posed by cryptocurrencies," Ms. Waters said.
Operators of stablecoin networks are generally regulated by state money-transmission laws and federal requirements to guard against money laundering, said Brian Brooks, chief legal officer of Coinbase Inc., which boasts 30 million customer accounts and enables people to trade an array of cryptocurrencies.
Speaking at an event in Washington, Mr. Brooks said banking regulators could have some sway over how Facebook or its partners manage the basket of assets that back Libra's value.
Mr. Brooks said Washington could permit a wave of innovation that makes finance cheaper and more accessible for consumers if it applies the same hands-off approach to crypto assets that it did to the internet in the 1990s.
"We have to bring regulation which largely was written between 1900 and 1950 in line with technology that was largely written in 2009," said Mr. Brooks, a former general counsel of Fannie Mae. "We are at a decision point on this asset. There could be great things ahead, or there could be nothing ahead."
Officials in France and the U.K. also have said they are looking at Facebook's cryptocurrency plans. "Anything that works in this world, will become instantly systemic and will have to be subject to the highest standards of regulations," Bank of England Gov. Mark Carney said at a central-bank conference in Portugal.
Write to Dave Michaels at email@example.com
(END) Dow Jones Newswires
June 19, 2019 19:27 ET (23:27 GMT)
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