Facebook CEO Mark Zuckerberg is set to testify in the House this week regarding Facebook’s Libra, the new digital currency network that the company is working to launch. If members of the Financial Services Committee thoroughly question Zuckerberg about how this new venture might help millions of people, the hearings will be more than worthwhile.
But don’t hold your breath.
For several months, members of Congress and many other politicians have campaigned nonstop against Facebook. That gives us every reason to expect that these hearings will be long on political theater and short on serious inquiry.
Financial Services Chair Maxine Waters (D-Calif.) will be running the hearings this Wednesday. In June, she called on Facebook “to stop right now what they’re doing so that we can get a handle on this…. We’ve got to protect our consumers. We just can’t allow them to go to Switzerland with all of its associates and begin to compete with the dollar.”
It is virtually impossible to square a sitting member of Congress calling for a legitimate private business to halt its operations with the foundations of the free enterprise system. The kind of political freedom that the U.S. guarantees its citizens cannot exist without economic freedom, and it would be tragic if Zuckerberg backs down.
Zuckerberg should also remind Waters that the Libra Association has to satisfy an alphabet soup of financial regulatory agencies that Congress created (to say nothing of those based in foreign countries) to “protect our consumers,” and that nobody who wants to innovate in the payments network sphere can do so without navigating a mountain of regulatory hurdles.
If the U.S. financial framework wasn’t so anti-innovation and haphazard, the association might have been based in the U.S. Americans have Congress to thank for offshoring financial businesses.
Of course, Waters is not alone in her quest. Financial Services member Rep. Brad Sherman (D-Calif.) has gone even farther than Waters. He wants an outright ban on cryptocurrencies because, he says, they threaten “to undermine the U.S. dollar” and are “only useful for criminal activities like money-laundering, drug-dealing, and tax evasion.”
It defies all logic that a currency useful only for criminal activities could rival the U.S. dollar. Regardless, if Sherman knows, beyond the shadow of a doubt, that criminals are using cryptocurrencies to run their enterprises, he should rush over to FinCEN or the FBI, the DEA, the Department of Homeland Security, or Treasury. Someone at one of the agencies would surely be happy to arrest these criminals and see to it that their enterprises get shut down. (And here is yet another example that it is easier to track criminals using cryptocurrency instead of old fashioned paper currency.)
On Wednesday, Zuckerberg should ask Rep. Sherman to clarify if he really believes in the U.S. Bank Secrecy Act and the anti-money laundering regime. If so, rather than ban new entrants from providing monetary services, Sherman should insist that the new providers play by the same rules as everyone else.
The truth – as Sherman and Waters both surely know – is that it’s impossible for a financial company to flout these rules (even outside of the U.S.) without being fined, shut down, and/or imprisoned.
Still, the award for the most egregious example of overreach with regard to shouting down Libra goes to Sen. Sherrod Brown (D-Ohio). Brown, of course, has joined the chorus of those who fear Facebook is “too big and powerful”—whatever that means. But that’s not why he wins the award.
In the letter, co-signed by Sen. Brian Schatz (D-Hawaii), Brown shares his “deep concerns about Facebook’s Libra crypto-currency project” and warns the executives: “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities.”
Brown is the ranking member of the Senate Banking Committee. It is difficult to see how this letter is not an abuse of power.
Sen. Mike Rounds (R-S.D.) was right to criticize Brown’s actions, but it was an understatement when he said that “The demands of a few of my colleagues should not be viewed as defining federal policy when it comes to innovation in digital currencies.”
Rounds was also correct to point out that the basis for U.S. securities law remains the Securities Act of 1933, a law that was passed when a large portion of the U.S. didn’t even have electricity. This archaic law is why many financial companies find it easier to operate overseas than in the U.S.
Rather than fire off ominous warning letters, Brown should work to update U.S. securities law so that the rest of the fintech revolution doesn’t happen outside of America.
It has long appeared that one of the real reasons politicians are so up in arms over Libra is that they do not want people to have alternatives to national currencies because such options threaten the state’s ability to pay for exorbitant spending programs. Viable alternative currencies protect people against governments that devalue their currencies, and few government officials want to let go of that power. (For further support, check out Diego Zuluaga’s Alt-M post on French finance minister Bruno Le Maire’s attack on Libra, and Larry White’s Alt-M post on Zimbabwe.)
Regardless of the fiscal aspect, the idea that the federal government must have a monopoly on producing the nation’s base money is dead wrong. The only way that an alternative to the U.S. dollar will actually become money – or even just part of some new kind of payment system – is if it proves to be economically beneficial.
It is the U.S. government’s job to protect people’s ability to figure such things out, not to stop people in their tracks when they think they might have a solution.
Unfortunately for millions of people, that’s the exact opposite of where things seem to be headed right now. An innovation like Bitcoin or Libra – sort of a payment network plus – holds the potential to drastically improve the U.S. payment system, as well as include millions in the under-developed world in the mainstream financial system.
Fundamentally, this disagreement is about who should own a nation’s payment system, and private firms are losing the battle, which is rather ironic given that private innovation in money typically ends up being taken over and copied by the government. The Fed’s takeover of the real-time payment system is just the latest example of federal copycats in the payments space – the Federal Reserve itself was modeled after successful private clearinghouses.
Critics like the French finance minister want governments to go even further than taking over real-time payments and stopping people from using privately produced digital currencies. They want central banks to create their own digital currencies and forbid people from having any other monetary alternatives.
In such a set up, people would have no alternative to the electronic accounts held at the central bank, meaning that they would have no way to stop the government from taking their money out of the accounts. If, for example, the Federal Reserve wants to stimulate the economy, it becomes a very simple matter of taking money out of the accounts of stubborn people who refuse to spend more money. That’s a far cry from limited government and free enterprise.
This entire pro-government effort is driven by officials with a common distrust of free enterprise and a desire to give bureaucrats more control over people. Historically, when it comes to money, this combination never works out very well for the average person.
When private firms harm customers, people have a choice to go somewhere else with their money and appeal to the government for justice. When the government uses its authority to take citizens’ money, people have no recourse.
If Zuckerberg wants Libra to be successful, he has no choice but to ensure that the Libra Association follows the rules. Ultimately, though, Libra will not succeed if the association concedes the principle that the government should own the payment system and monopoly rights to producing money.
This piece originally appeared in Forbes https://www.forbes.com/sites/norbertmichel/2019/10/21/facebook-zuckerberg-should-stand-firm-on-libra/