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Facebook CEO defends crypto project

Facebook CEO Mark Zuckerberg meets U.S. President Donald Trump at the White House in September (ARÊTE/Joiyce Boghosian)

U.S. lawmakers raised a raft of concerns over privacy and public trust on Wednesday while grilling Facebook CEO Mark Zuckerberg on his plans to create a global digital currency and international organization to oversee it.

The hearing in Washington before the House Financial Services Committee focused on Facebook’s cryptocurrency plans. The committee’s chairwoman, Rep. Maxine Waters, Democrat of California, opened the hearing by calling for a “moratorium” on the social media giant’s cryptocurrency project until more is known about the full range of its potential impacts.

The project includes plans to create a Libra Association in Geneva that would apply for a payments license in Switzerland, so the proposed cryptocurrency can be regulated by the Swiss Financial Market Supervisory Authority.

Facebook hopes to have FINMA oversee its new payment system. Last month, the company asked for a ruling to clarify the status of the association and its Libra coin, according to a statement touting the “global l0w-friction high-security payment system” as a means of empowering billions of people.

“Facebook’s plans to create a digital currency, Libra, and a digital wallet, Calibra, raise many concerns relating to privacy, trading risks, discrimination, opportunities for diverse-owned financial firms, national security, monetary policy and the stability of the global financial system,” Waters said in her statement.

“As I have examined Facebook’s various problems, I have come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project,” she said.

Zuckerberg, the sole witness at the hearing, defended Facebook’s record on privacy, misinformation and lack of political fact-checking in the wake of a series of scandals in the past couple of years. He assured lawmakers he would not create the Libra cryptocurrency, which plans to launch next year, without proper regulatory approval.

“There are more than a billion people around the world who don’t have access to a bank account, but could through mobile phones if the right system existed. This includes 14 million people here in the U.S.,” Zuckerberg said in his testimony.

“The current system is failing them. The financial industry is stagnant and there is no digital financial architecture to support the innovation we need. I believe this problem can be solved, and Libra can help,” he said. “The idea behind Libra is that sending money should be as easy and secure as sending a text message.”

The first product that Libra plans to launch is a digital wallet powered by blockchain technology that would be available in Messenger, WhatsApp and as a standalone app. It is named after a basic Roman measurement of weight.

But while Libra is envisioned as a global payments system, fully backed by a reserve of cash and other highly liquid assets, Zuckerberg acknowledged that Facebook’s timing is less than ideal.

“I believe this is something that needs to get built, but I understand we’re not the ideal messenger right now. We’ve faced a lot of issues over the past few years, and I’m sure people wish it was anyone but Facebook putting this idea forward,” he said.

A litany of complaints

Despite the committee’s focus on the Libra project, Waters broadened the scope of the hearing. Facebook has “utterly failed” to address problems with diversity and inclusion, she said, and the Menlo Park, California-based company has been sued by the National Fair Housing Alliance for “enabling advertisers to engage in discrimination on its advertising platforms.”

The U.S. Department of Housing and Urban Development also filed an official charge of discrimination against Facebook for its advertising practices, including the company’s ad delivery algorithms that “were found to have a discriminatory impact even when advertisers did not target their audience in discriminatory ways,” according to Waters.

“I understand that Facebook has refused to cooperate with HUD’s fair housing investigation by refusing to provide relevant data,” she added.

Waters emphasized that Facebook remains the subject of an antitrust investigation by the attorneys general of 47 states and the District of Columbia, and has already been fined $5 billion by the Federal Trade Commission for “deceiving” consumers and failing to keep their data private.

Some politicians, including presidential contender Sen. Elizabeth Warren, Democrat of Massachusetts, have suggested that Facebook may need to be broken up over alleged anticompetitive and monopolistic traits.

Facebook faces intense scrutiny for its alleged role in the Russian government’s interference with the 2016 presidential election over what Waters described as “ads designed to pit Americans against each other, suppress the vote and boost Trump.” The social media company, which claims 2.7 billion users, raised more questions when it announced it would not fact-check political ads.

“Facebook allowed a counterfeit Black Lives Matter webpage to operate with the goal of discouraging African Americans from voting,” Waters said. “Three years later, these activities are still continuing on Facebook. We learned just this week that Russia and Iran are using the same tactics to meddle in our next election.”

But on the Libra project, Zuckerberg maintained, the company would ensure “a simple, secure, and stable way to transfer money” that would benefit businesses by encouraging people to make transactions on Facebook’s platforms. He acknowledged, however, the project carries some risks.

“There are questions about financial stability, fighting terrorism, and more. I’m here today to discuss those risks and how we plan to address them. But I also hope we can talk about the risks of not innovating,” said Zuckerberg.

“While we debate these issues, the rest of the world isn’t waiting,” he said. “China is moving quickly to launch similar ideas in the coming months. Libra will be backed mostly by dollars and I believe it will extend America’s financial leadership as well as our democratic values and oversight around the world. If America doesn’t innovate, our financial leadership is not guaranteed.”

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