By Paul Kiernan
WASHINGTON -- Federal Reserve Chairman Jerome Powell and
legislators in both parties expressed broad concern about Facebook
Inc.'s plan to create a cryptocurrency-based payment network,
underscoring the intense legislative and regulatory scrutiny the
project could face.
Mr. Powell, speaking to the Senate Banking Committee on
Thursday, expressed doubt about the feasibility of launching the
digital coin, dubbed Libra, on the timeline Facebook has
"I think we agree that Libra raises a lot of serious concerns,
and those would include around privacy, money laundering, consumer
protection, financial stability," he said. "Those are going to need
to be thoroughly and publicly assessed and evaluated before this
Mr. Powell, in a second day of testimony on Capitol Hill,
signaled again that the Fed could cut interest rates this month to
bolster the U.S. economy, as it faces risks from slowing global
growth and uncertainty about trade disputes.
"The bottom line is, the economy is in a very good place, and we
want to use our tools to keep it there," Mr. Powell said in
testimony that largely echoed his remarks Wednesday before the
House Financial Services Committee. Investors have interpreted such
language to mean the central bank will lower rates at its next
policy meeting July 30-31.
Senators spent much of the time asking Mr. Powell about Libra, a
cryptocurrency planned by Facebook and more than two dozen other
companies. The coin will be pegged to a basket of government-issued
currencies, and users could send it to each other electronically
and use it to make purchases on Facebook and across the
The Senate Banking Committee and House Financial Services
Committee are set to hold hearings on the initiative Tuesday and
Wednesday. Mr. Powell said the Fed has a group of staffers looking
at Libra's implications.
"The idea that this would be going into implementation within 12
months, I think, is not going to be proven right," he said. "I
think we're going to take more time than that."
Economists say Libra has more potential to disrupt global
finance than earlier cryptocurrencies, which failed to gain
traction at the retail level and experienced huge swings in value,
making them unattractive alternatives to government-issued money.
Libra could be different, in part because Facebook's 1.56 billion
daily users gives it the potential for widespread adoption.
But that same characteristic also would elevate the need for
regulatory oversight, Mr. Powell said.
"The size of Facebook's network means it could be, essentially,
immediately systemically important," Mr. Powell said Thursday.
"This should be subject to the highest level, the highest
expectations in terms of privacy but also prudential
Facebook has acknowledged as much. In a note this month, the
Libra project's leader, David Marcus, said the company is committed
to "a collaborative process with regulators, central banks and
"If this is not done right, it could definitely present systemic
risks no one wants," said Mr. Marcus, who is slated to testify
Tuesday at the Senate hearing.
A Facebook spokeswoman, in an emailed statement, pointed to Mr.
Powell's remark Thursday that "everyone wants to start from the
proposition that they want innovation to occur." She said the
company is aligned with the Fed chairman around the need for public
discourse and not moving too quickly.
Leaders of the congressional committees that oversee financial
regulation expressed skepticism about the project, however.
Sen. Sherrod Brown (D, Ohio), the top Democrat on the Senate
Banking Committee, said Thursday that Libra is an attempt by
Facebook to "ape the role of government," adding that the company
has gotten "carried away with their own wealth and power."
"So now, in addition to complex and risky Wall Street banks, we
face new risks from nonregulated, giant tech companies armed with
vast amounts of personal data with the intent, as far as I can
tell, of conducting monetary policy on their own terms," Mr. Brown
One key issue with Libra, Mr. Powell said, is that no single,
existing regulatory agency would currently have authority to
oversee it. The Fed, for instance, only supervises banks, though
Sheila Bair, the former chair of the Federal Deposit Insurance
Corp., argued in an op-ed on Yahoo! Finance Monday that Congress
should give the Fed lead authority to regulate Libra.
Senate Banking Committee Chairman Mike Crapo (R., Idaho) asked
Mr. Powell if the project might call for the creation of a new
regulator focused on data protection.
"I think that is exactly the question we need to be focused on,"
Mr. Powell said.
President Trump said on Twitter late Thursday that he isn't a
fan of cryptocurrencies, saying its "value is highly volatile and
based on thin air."
"Unregulated Crypto Assets can facilitate unlawful behavior,
including drug trade and other illegal activity," he wrote.
"Facebook Libra's 'virtual currency' will have little standing or
Write to Paul Kiernan at firstname.lastname@example.org
(END) Dow Jones Newswires
July 11, 2019 21:07 ET (01:07 GMT)
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