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Less than a month after being formally unveiled, Facebook’s cryptocurrency project has run into its biggest roadblock. Jerome Powell, the Chair of the United States Federal Reserve stated that Libra ‘cannot go forward,’ until serious concerns regarding its working are addressed by the social media giant.
Powell, speaking before the US House of Representatives and Financial Services Committee and Chair Rep. [D] Maxine Waters, stated that Libra presented several concerns for the Federal government with respect to data protection, money laundering, and financial stability.
“Libra raises serious concerns regarding privacy, money laundering, consumer protection, and financial stability. These are concerns that should be thoroughly and publicly addressed before proceeding.”
Later during the hearing, Powell reiterated his firm stance against Libra, stating, “I don’t think the project can go forward.”
The Federal Reserve has already set-up a “working group,” to focus on the aforementioned issues, although Powell did not confirm if this group was solely created to handle Libra. Additionally, several other parties, including the federal government, regulatory agencies, and governments and central banks of other countries are being “coordinated” with to look into Libra.
Powell eased the immediate concerns of the lawmakers, adding that the regulatory process should be a “patient and careful one,” rather than being a “sprint to implementation.”
Within a week of Libra’s launch, the very committee Powell was addressing, spearheaded by Representative Waters called for a ‘shutdown,’ of the project. Several lawmakers, and central bank chiefs, the world over, began expressing their concerns, calling for undue regulation of Libra, all while the project will only launch in 2020.
Chairwoman Waters has been vocal in her firm opposition against the Facebook Libra project, along with her fellow Democrats. She added that Facebook will intend “to establish a parallel banking and monetary policy system to rival the dollar.”
Reiterating the cautioned approach to the project in the face of the regulator’s angst, Federal Reserve Chair added,
“It’s something that doesn’t fit neatly or easily within our regulatory scheme but it does have potentially systemic scale. It needs a careful look, so I strongly believe we all need to be taking our time with this.”
Facebook, given its global reach, customer base and supporting infrastructure, can change the way the payments sector is seen, further concerning lawmakers. Rep. [R] Patrick McHenry questioned Powell based on the aforementioned pretext, to which Powell stated that Libra could pose a threat to the overarching financial world.
“If there were problems there associated with money laundering or terrorist financing — any of the things we’re all focused on, including the company — they would arise to systemically important levels just because of the mere size of the Facebook network.”
Speaking to Reuters, Elka Looks a spokeswoman for Facebook expected the response from the lawmakers stating that the social media giant is “very much aligned with the Chairman [of the Federal Reserve] around the need for public discourse.” She stated that the very reason the Libra announcement was made so early was to deal with the regulatory mess that was foreseen.
“This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback.”
In closing, Powell leveled that the Federal Reserve does not want to hamper financial innovation but wants the same to take place in a “safe and sound way.”
Regardless of intentions, the immediate damage has already been done. After breaking the $13,000 mark on July 10, Bitcoin shaved over 13 percent in less than a day, dropping below $11,500 while the altcoins were drowned in a sea of red. Several coins were dropping by double-digit numbers in a one-hour window, while the collective market cap is now down below $315 billion.
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