David Marcus got to experience firsthand what it’s like to stand before an unhappy Senate Committee. The Libra coin top executive project manager was grilled on everything from why the Libra Association is headquartered in Geneva to Facebook’s role in spreading fake news during the 2016 presidential campaign. The Committee did not overlook questions concerning the incredible amount of personal information Facebook holds along with the $5 billion fine levied by the FTC for privacy breaches. In the words of Senator John Kennedy, “Facebook now wants to control the money supply… What could go wrong with that?” 1
The JPM coin, however, has not only escaped senate scrutiny but earned the blessings of the Federal Reserve. So, what did JP Morgan do so right and Facebook do so wrong? JP Morgan Chairman of the Board and CEO Jamie Dimon understands this cardinal rule: people in high places have a vested interest in maintaining their status and power. Facebook’s Libra coin is seen as a direct threat to the economy and as a rival to the US Dollar, whereas the JPM coin is not.
The JPM coin works within the existing banking system. The coin uses blockchain technology so money transfers in and out of JP Morgan are completed considerably faster compared to traditional bank wires, and at a fraction of the cost. International and large corporations presently using the bank’s treasury services can use the JPM coin to reap the same benefits. Additionally, all of these transactions adhere to the regulations banks are obliged to follow. The coin remains privately owned for use only within the JP Morgan universe.
Facebook’s White Paper makes it clear that the Libra coin is designed to replace fiat money by providing mobile banking services to the over 1 billion adults who don’t have access to a bank. This takes Libra out of banking’s regulatory reach and makes it a direct competitor to the host nation’s currency. Facebook intends to grow Libra use by having authorized resellers sell the coin to customers and repurchase them later. However, all US companies doing business overseas must adhere to the Know Your Client and Money Laundering Act requirements, and the White Paper gives scant information on how Facebook will accomplish this. To top it off, the coin’s controlling body, the Libra Association, is headquartered in Geneva, Switzerland, a country well known for its banking secrecy laws. Secrecy does not inspire confidence and casts a shadow on the developer’s real intent behind the coin. Factor in the previously mentioned Facebook privacy breaches and the proliferation of fake news and you have a textbook example of why Libra executives are standing before the Senate.
With so much against it, can the Libra coin be saved? Of course. Libra’s goal of providing mobile banking services to developing nations meets a real need that traditional banks have shunned. Libra executives can present a comprehensive plan to the senate committee that shows how the coin will integrate within the host country’s banking system. However, the Libra Association must demonstrate that it has a solid plan in place to carry out KYC and MLA provisions. Perhaps the most difficult problem for Facebook will be proving the company can be trusted to ensure the privacy and safety of its member’s information.
The first senate hearing did not go well for David Marcus and he may be the guest of honor at a future hearing. Mr. Marcus should pull a page from Jamie Dimon’s playbook and start cooperating and working with the government and the banking industry instead of butting heads.
