David Marcus, who is spearheading Facebook’s Libra as head of blockchain, explains that the new platform will not operate as a shadow bank. In his testimony on Wednesday before the United States House Committee on Financial Services, Marcus clarifies,
“We will not offer banking services.”
Instead, Marcus describes the new Calibra platform as a payment services company, like Venmo and Paypal, and affirms that it will not share individual customer data with the Libra Association or Facebook.
Marcus says he does not consider Libra to be a security or an exchange-traded fund, remarking that it could possibly be considered as a commodity.
Representative Ed Perlmutter told Marcus he supports innovation but the concern over Libra is in the unknown – and what will happen once Facebook’s new genie is out of the bottle.
“We all have this same question for you and that’s the resistance you’re feeling because we think you’re a bank, but you’re not quite like a bank,” Perlmutter said. “And if you’re a bank, we regulate the heck out of you because we’ve seen a lot of people lose money where there hasn’t been regulation. So that’s the resistance that I feel, I want to support your innovation I want to support the efficiency that you people believe you’re bringing to the table. But I also don’t want anybody getting hurt here.”
Libra is somewhat intended to resemble a stablecoin that will be tied to a basket of fiat currencies and government bonds, and members of the Libra association will receive a Libra investment token that derives its value from the collateral on that basket – “the Libra Reserve.”
The former chairman of the Commodity Futures Trading Commission believes Libra should be regulated like a security.
Gary Gensler, who chaired the CTFC under former President Barack Obama between 2009 and 2014, says Libra looks a lot like an investment vehicle and should be regulated as such.
“As currently proposed, the Libra Reserve, in essence, is a pooled investment vehicle that should at a minimum, be regulated by the Securities and Exchange Commission (SEC), with the Libra Association registering as an investment advisor.”
Gensler notes that he believes the actual Libra token is “part of the same pooled investment vehicle” as the Libra investment token and is burdened with the same risks.
The longtime Treasury official also says Facebook’s new project may need to fall under banking regulations as well.
“Thus, there is some basis to consider the Libra Reserve as a bank or to apply bank-like regulation to it. At a minimum there should be restrictions on Libra Reserve’s investments and prohibition on its ability to lend or operate as a fractional bank.”
Responding to Representative Scott Tipton, Marcus agreed that banking regulations should apply if it were to offer banking services, but stressed that Libra’s focus is payments and not banking.
Marcus also assured the lawmakers that Libra is not designed to undermine the US dollar, stating,
“I want to be very clear, we do not want to compete with the dollar or with sovereign currencies.”