This article focuses on highlights from the testimony of Facebook’s David Marcus, who is a co-creator of Libra and the head of the Calibra project, before the U.S. Senate Committee on Banking, Housing, and Urban Affairs (aka “Senate Banking Committee”), on Tuesday (July 16).
On June 19, the U.S. Senate Banking Committee announced that it will hold a hearing (“Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations”) on July 16 to discuss Libra. This is the same Committee that wrote an open letter on May 9 to Mark Zuckerberg, Founder, Chairman, and CEO of Facebook, in order to get answers to seven questions about Facebook’s proposed crypto-based global payments system.
For the sake of brevity and clarity, David’s comments and those of the senators have been paraphrased and abbreviated. Also, although the actual hearing went on for almost two and a half hours, we focus only on the most interesting and difficult questions that Marcus was asked.
After reading his opening remarks, the questioning of David Marcus started. First up was Senator Crapo (who is the Chairman of the Committee).
Senator Crapo: Should the US not establish the rules?
Marcus: I agree. The U.S. should lead. Switzerland was chosen as the home of the Libra Association because it is a well-established place for many international organizations and not to escape from regulatory oversight. Libra Association will still be registered with FinCEN (as a money service business).
Senator Crapo: Which regulators will be providing oversight for Libra?
Marcus: We are happy to comply with all the appropriate regulators around the world.
Senator Crapo: What info will Facebook will collect when someone uses the Calibra wallet?
Marcus: None (i.e. only what is necessary for AML purposes). Also, people are free to use other Libra wallets (provided by third parties).
Senator Brown: Should anyone trust Facebook with their money?
Marcus: We have made mistakes. Trying to get better. Facebook is just one of 28 members of Libra Association.
Senator Brown: You get paid in USD. Will you pledge to accept 100% of your salary and other compensation in the Libra cryptocurrency?
Marcus: We are not trying to compete with bank accounts. Yes, I would.
Senator Brown: Both parties as well as the President are worried about Libra… What will convince you not to launch Libra?
Marcus: We agree that there are legitimate concerns. That’s why we released the Libra white paper so early. We want to get this right.
Senator Toomey: There are lots of benefits in blockchain technology and cryptocurrency. We should be exploring this. We should not strangle this baby in the crib. Is it the plan at some point to seek the consent of participants so you could monetize Calibra users’ financial data somehow?
Marcus: No. We will make money in two different ways. First, we expect the transactions taking place through Calibra to lead to more advertising by our business users. Second, we hope to, at some point in the future, partner with financial services companies to offer our users new products/services.
Senator Toomey: Regarding the Libra Reserve, what about the interest that will generated? It could become quite substantial. If Libra Association is a non-profit, why are you distributing this income to the members of the Association and/or the investors?
Marcus: This income will not be unlimited. We will need to find a way to manage the reserves.
Senator Tester: I am concerned about consumer security. With cryptocurrencies like Bitcoin, transactions are final and cannot be reversed. How will you handle theft?
Marcus: Calibra wallet will offer protection against fraud. Consumers will be made whole. We will do our best to resolve those claims as soon as possible.
Senator Tester: What kind of faith can we have in Libra?
Marcus: There will be no fractional reserve (unlike with traditional banking).
Senator Tester: How can you assure us that our money will be there?
Marcus: The reserve is one for one. We want there to be oversight of the reserve.
Senator Tester: How will you stop bad actors from using Calibra?
Marcus: To create a wallet, you will need a government-issued ID. We will go to through AML and CFT procedures.
Senator Tillis: How much money are you putting into the infrastructure?
Marcus: Facebook has the resources to innovate. We have not determined an exact budget.
Senator Warner: How will Facebook support third-party wallets? Will you make it easy for users to move their data from Calibra to other wallets?
Senator Schultz: Why is Facebook moving to crypto before fixing its other problems?
Marcus: We want to keep innovating and serving our users.