At 10 a.m. ET this morning, Facebook CEO Mark Zuckerberg was the sole witness to testify in front of the United States House of Representatives Committee on Financial Services about his role in developing libra, a cryptocurrency backed by a basket of stable international assets and designed to be spendable anywhere in the world. But as is typical of such hearings, an unabridged written testimony was submitted in advance so members of Congress and others could prepare their lines of questioning.
As governments and central banks grapple with what it would mean to have a global currency backed by their own assets, in some ways Zuckerberg’s comments were disappointingly predictable. But as three new bills introduced to Congress in the days leading up to the testimony could spell doom for Facebook’s plans, a closer analysis of Zuckerberg’s comments shines a light on the social media giant’s bigger strategy.
The submitted written testimony is broken down into five sections: introduction, a summary of the Libra Project, combating discrimination, a commitment to diversity, and a conclusion.
The introduction is interesting for three reasons. First, Zuckerberg plans to position Libra in the global context as a reaction to China’s plans to release a similar cryptocurrency that will be spendable anywhere in the world and will be distributed via a consortium of state-owned companies. While Facebook has previously emphasized that the libra cryptocurrency would be backed by a basket of international currencies, perhaps giving a broader group of people a stake in the technology, today Zuckerberg will use the political undertones and his audience of U.S. elected officials to refocus the project on its American roots.
“Libra will be backed mostly by dollars and I believe it will extend America’s financial leadership,” Zuckerberg will say, according to the prepared notes. “As well as our democratic values and oversight around the world. If America doesn’t innovate, our financial leadership is not guaranteed.”
The introduction is also notable in that it foreshadows a surprising amount of attention on questions of diversity and civil rights, topics he’s previously addressed in front of Congress but that are only tangentially related to the cryptocurrency, which is being designed to serve with unbanked people typically consisting of underrepresented groups. Zuckerberg wraps up his address with what appears to be a hat-tip to the religious inclinations of some elected officials and U.S. voters. “I feel blessed to be in a position where we can make a difference in people’s lives,” his prepared remarks say.
The second section of Zuckerberg’s remarks to Congress largely rehash the already well-known definition of the Libra Association founded by Facebook, the libra cryptocurrency, and Facebook’s Calibra wallet for storing the cryptocurrency, with one small change. Since Facebook’s head of cryptocurrency, David Marcus, testified before Congress in July, four U.S. lawmakers have sent a letter to association members asking them not to participate in the group, which was followed by an exodus of every major financial player in the group, including PayPal, MasterCard and Visa. Not all elected officials responded so harshly, with U.S. senator Mike Rounds of South Dakota calling his colleagues’ “ominous tone” “disappointing” and expressing support for the financial innovation.
This section concludes by distinguishing Facebook’s cryptocurrency wallet, Calibra, from the libra cryptocurrency and clarifying Facebook’s intention not to sell data about Calibra wallet users to third parties. The section also reiterates Facebook’s desire to position libra as a U.S. tool for global financial competition. “If America doesn’t lead on this, others will,” the submitted comments read. “Foreign companies or countries may act without the same regulatory oversight or commitment to transparency.”
Sections three and four really address the same subject of combating discrimination. Reading between the lines however, the comments could serve two goals related to libra. First, they focus on some of the positive changes Facebook has made recently, including the establishment of a civil rights task force, which could leave a good taste in congress members mouths while so much negative news about Facebook fills the headlines. Second, the groups of people typically addressed in these civil rights campaigns, women and other underrepresented groups, are among the same people Facebook has publicly identified as its target users for the cryptocurrency: the under-banked.
The conclusion is largely aimed at reiterating Facebook’s previously stated intention of not launching without regulatory support, which in increasingly looking like a tough sell. As of early last week there were 21 bills relating to blockchain in various stages of passing through congressional review. But on Friday, October 19, three new bills were introduced aimed at undermining Facebook’s efforts. An updated version of the “Keeping Big Tech Out of Finance Act,” appears to be largely aimed at keeping Facebook away from cryptocurrency, according to Jason Brett, CEO of the Value Technology advocacy group. The “Stablecoins are Securities” bill could have far-reaching implications to companies like Gemini, Circle and Coinbase, which have already created stablecoins similar to libra but backed by different assets. The “To Prohibit The Listing of Certain Securities,” appears to seek to prevent stablecoins like libra from entering the capital markets space, according to Brett.
“As Congress attempts to reign in Libra from its perceived impact to the strength of the U.S. dollar, policymakers are creating broad measures that has an impact beyond Facebook,” says Brett. “If the three bills were actually passed, no Big Tech company could offer a cryptocurrency, all stablecoins will be treated as securities, and any company or its officers profiting from a stablecoin will face being delisted from a stock exchange.”