Last month, Facebook announced its digital currency Libra, which is set for a global roll out next year. However, before that controversial roll out does take place, there have been a slew of regulatory eyes on the currency already. One such eye is from the US, for which the Head of Calibra, David Marcus, released his testimony. He will be presenting it before the US Congress.
Marcus will be speaking before the Senate Banking Committee and the House Financial Services Committees this week. The cryptocurrency, since its announcement, has been surrounded by criticism and controversy. Among those criticizing it are US President Donald Trump and American investor Mark Cuban. On behalf of Facebook’s subsidiary, Marcus will be defending the digital currency before Congress.
The testimony focuses on the structure and management of Libra as well as the Calibra wallet. It also, mentions the implications for its users.
“Libra is a payment tool, not an investment. People will not buy it to hold like they would a stock or a bond, expecting it to pay income or increase in value,” Marcus said differentiating the structure of Libra from financial assets like stocks.
The cryptocurrency is designed to minimize volatility by pegging it to a single asset. The testimony mentions that instead of a single real-world currency it will be backed through the Libra Reserve which will hold assets like cash bank deposits and government securities. Regarding these assets, Marcus wrote that the assets in the Libra Reserve will be “held by a geographically distributed network of regulated custodians” which will provide “transparency, security, and a decentralization of the assets.”
“The currencies represented in the Libra Reserve will be subject to their respective government’s monetary policies—policies those governments will continue to control”, writes Marcus. He added that the Reserve has “no intention of competing with any sovereign currencies or entering the monetary policy arena”. And to ensure this it will be working with the Federal Reserve and other central banks.
Facebook has recently faced allegations many regarding its data collecting methods as well as controversial marketing schemes. The testimony mentions that Facebook’s role in the governance of the Association will be equal to that of its peers. Also, Facebook will have only one vote and “will not be in a position to control the wholly independent organization.”
The Association maintains policies concerning Anti-Money Laundering (AML) and Bank Secrecy Act. And to fight against money laundering and terrorist financing, the members of the Association will provide financial services on their network. The Association will not monetize data on the blockchain and will not hold any personal data on its consumers.
To clear Facebook’s role in the management of Calibra wallet, Marcus wrote, “We do not expect Calibra to make money at the outset, and Calibra customers’account and financial information will not be shared with Facebook, Inc., and as a result cannot be used for ad targeting.”
State financial regulators will regulate Calibra as a money transmitter, and the Federal Trade Commission and the Consumer Financial Protection Bureau will monitor for consumer protection and data privacy and security issues. Also, Calibra is registered with FinCEN (Financial Crimes Enforcement Network) as a money services business.
Marcus mentions in the testimony that Calibra (like Libra) will not collect or hold consumer data. Also, no consumer data will be shared with Facebook.
In the testimony, Marcus emphasized that ‘Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.’
President Trump had tweeted that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.” In doing so he questioned the dependability of the digital currency.
Also, the US House subcommittee submitted a letter to Facebook requesting to cease the development of Libra and the Calibra wallet until they had been properly examined. Due to this, the outcome of the hearing of Marcus’ testimony will be of essential importance for Libra and Calibra’s future.