Libra has been a focal point of the discussion over the past few weeks. Let’s look at what we do know about Libra and its regulation right now.
It has been a while since there were the Senate hearings concentrating on Facebook’s Libra. David Marcus answered a lot of questions and dodged several of them too. Now, when the dust settled down, let’s look closer at Libra. What do we actually know?
Then, there was a hearing
What about those hearings? First, that comes to mind is the fact that Bitcoin wasn’t so easily associated with Libra. What the whole industry was afraid of, didn’t happen. Libra isn’t like Bitcoin, after all. But politicians repeatedly proved to us that they don’t care and they can be ignorant in terms of cryptocurrencies.
Libra is a stablecoin and should be regarded as such. Marcus David confirmed that. He even said, when he was forced, that he would accept all of his compensation in the new currency. He stated:
“I would trust all of my assets in Libra. I would because it is backed 1-for-1 with a reserve.”
That is the purest definition of stablecoin. But that wasn’t any shocking news. We knew that earlier, but maybe politicians needed to acknowledge that point.
During the hearing, the head of Libra was asked many times about trust. Facebook had problems with ensuring data privacy for its users in the past (Cambridge Analytica rings a bell), so why would be any different this time? Marcus tried to avoid answering questions about any specifics. He just said that “trust is primordial,” whatever that term exactly means.
Senators also raised the concern that Facebook would have too much power in the Libra’s governing. That is, without any doubt, one of the biggest concerns about Libra. While Bitcoin doesn’t have any central issuer, Facebook’s currency will surely have one.
Marcus tried to shift the discussion about the need not to lag behind in the race for blockchain technology. However, as Sen. Brian Schatz noticed, the question is not whether the US should go into the technology, but rather why Facebook should be the front runner.
The only thing that worked in the favor of Facebook was the assurance that Libra Association “will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy. Monetary policy is properly the province of central banks.”
However, it doesn’t mean that Facebook would hold out its development work on the digital coin. The hearing lasted two days, and David Marcus was grilled by most of the time. Probably the biggest dagger came from Rep. Alexandria Ocasio-Cortez, who compared Libra to scrip, a type of private company money.
AOC also questioned the election of the members of the association. Marcus didn’t have any right answer to that.
At least, what he revealed, was the basket of fiat currencies backing Libra. He said that it would be 50% of the US dollar, and some euros, British pounds, and the Japanese yen.
Finally, at the end of the hearing, the term “shitcoin” was used in regard to Libra. That concluded a bad image of Facebook and its new development during the Senate hearing.
While the whole hearing was very interesting, the aftermath of it was even more intriguing.
First, Bitcoin reclaimed $10,000 price just after the committee meeting. Many experts argued that Bitcoin only gained over the problems of Libra.
Another interesting action happened in different parts of the world. Other countries reacted to the hearing. The G7 Finance Ministers raised many concerns about Libra. According to them, Facebook’s currency can be a real threat to global financial stability. Among those, the loudest voice came from France. Bruno Le Maire, the French finance minister, said:
“G7 cannot accept private companies issuing their own currencies without democratic control.”
The conversation around Libra heated so much that even some lawmakers claimed that Facebook’s toy would send an invite to terrorists, drug dealers, etc.
Nevertheless, probably the biggest favor that Libra’s hearing did for the cryptocurrency was raising the awareness. Day by day, the news came out that this or that country (including the United States) is willing to work on a legal framework for cryptocurrencies.
On the other hand, Libra has many issues to address. And the hearing only exposed those. There is a trust problem. Decentralization is another very important one. Too much power in one hand is also a difficulty.
Another important problem came from Switzerland. Facebook’s Libra is set up in that European country. Despite all of that, the social media mogul still hasn’t responded to informational request from Swiss watchdog.
A little retreat
The news was so bad that the initial investors took a backseat. When Libra was unveiled, it had already 28 founding fathers. But had it really? According to Visa’s CEO, that isn’t entirely true. Alfred F. Kelly, Jr. said that his company had signed only a “nonbinding letter of intent to join Libra.” However, he didn’t say that they would withdraw from the association, but the project is in the early stages, and nothing is finalized yet.
Then, Ren Zhengfei, the CEO of Huawei, encouraged the Chinese government to overtake Libra’s efforts, and develop China’s own ‘Libra’.
For the time being, it seems that regulatory issues may constitute an impossible barrier to the launch of Libra. There are now even concerns that Libra could not be launched at all. Because of that, Mark Zuckerberg step in. The CEO of Facebook said that his company would spend “however long it takes” to come up with regulations accepting Libra cryptocurrency project. He said:
“We’ve opened a period of, however long it takes to address regulators and different experts and constituents’ questions about this and then figure out what the best way to move forward is.”
So, is it Libra a threat to the world’s economy? Or is it a real possibility to spread cryptocurrencies across the whole globe? Facebook has many problems, and it is too early to say whether the biggest social media platform will resolve them. If not, it will be probably the most significant collapse in the history of the cryptocurrency industry. There is a chance that this project will work, but – for now – it a long shot.
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