Lawmakers introduce bill to 'protect' consumers from Facebook's digital currency

Lawmakers introduce bill to 'protect' consumers from Facebook's digital currency
© Aaron Schwartz

A pair of lawmakers on Thursday introduced legislation that would place stringent government oversight on Facebook's incoming digital currency and similar projects. 

The bill from Reps. Sylvia GarciaSylvia GarciaHispanic Caucus asks for Department of Labor meeting on COVID in meatpacking plants Texas Democrat proposes legislation requiring masks in federal facilities Hispanic Caucus requests meeting with private detention center CEOs MORE (D-Texas) and Lance GoodenLance GoodenGOP lawmakers call for new sanctions on senior Chinese officials Hillicon Valley: Uber lays off 3,000 | FBI unlocks Pensacola shooter's phones | Lawmakers introduce bill restricting purchase of airline equipment from Chinese companies Bipartisan bill would restrict purchases of airport equipment from Chinese companies MORE (R-Texas) would place the Libra digital coin squarely under the Securities and Exchange Commission's jurisdiction, a move that would subject the cryptocurrency to a set of extensive and well-established regulations.

Facebook has denied that the Libra coin is a security. But lawmakers have struggled to understand how to classify the ambitious Libra project because the U.S. government has not yet defined which federal agencies will be in charge of regulating cryptocurrencies. 

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"Managed stablecoins, such as the proposed Libra, are clearly securities under existing law," Garcia said in a statement. "This legislation simply clarifies the statute to remove any ambiguity. Bringing clarity to the regulatory structure of these digital assets protects consumers and ensures proper government oversight going forward." 

Gooden said it is Congress's role to "clarify the regulatory framework" for digital currencies like Libra, which will likely be pegged to government-backed currencies like the dollar. The Libra coin has been classified as a "stablecoin," meaning it is backed by a basket of currencies held in a reserve. 

"It's the responsibility of Congress to clarify the regulatory framework that will apply to stablecoins, especially now that mainstream institutions are offering them to consumers," Gooden said. 

The Libra project has faced intense skepticism and pushback from regulators around the world since Facebook announced its plans over the summer. Since then, Facebook has abdicated control over the project and can no longer speak for the broader Libra Association, a 21-member entity tasked with overseeing the cryptocurrency’s launch.

The Libra Association's head of policy and communications, Dante Disparte, said the group supports "responsible financial services innovation and oversight."

"We recognize that stablecoins are an emerging technology, and that policymakers must carefully consider how this fits into their financial system policies," Disparte said in a statement Thursday. "However, we believe that it is important to regulate activities and not technologies, allowing for responsible innovation to flourish.”

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Libra’s complex structure and massive scale will likely be subject to a vast array of banking, securities, money laundering and illicit finance laws enforced by close to a dozen agencies and departments. And even industry-friendly lawmakers and regulators have expressed alarm about the potential financial impact of a project already primed with over 2 billion potential customers.

David Marcus, who heads Facebook's involvement in the project, told reporters earlier this year that it strongly opposes defining the Libra as a security. 

"We strongly believe it’s [not a security] and we have good legal opinion that confirms in the view of the outside counsels we’ve ... consulted," Marcus said.

The Libra project is still in its very early stages. Facebook released a white paper laying out its vision over the summer, and the 21 initial members of the Libra Association signed on to its charter last month. When Facebook CEO Mark ZuckerbergMark Elliot ZuckerbergHillicon Valley: Productivity, fatigue, cybersecurity emerge as top concerns amid pandemic | Facebook critics launch alternative oversight board | Google to temporarily bar election ads after polls close Conservative groups seek to block Facebook election grants in four swing states: report Facebook critics launch alternative oversight board MORE testified before the House Financial Services Committee about the project in October, he emphasized there are still many unresolved questions around what the coin could look like by the time it is launched.

“I actually don’t know if Libra is going to work,” Zuckerberg said.

Updated at 7:27 p.m.