The “Rules of the Road” Exception for Facebook’s Libra

Facebook should not be prohibited from proceeding with the creation of Libra if they comply with applicable regulatory frameworks and continue to engage with regulators to establish “clear rules of the road” moving forward.

Another Senator present at the July 16 Senate hearing was Mike Crapo, Chair of the US Senate Committee on Banking, Housing, and Urban Affairs itself. Crapo has also served on a number of other committees during his tenure in the Senate: Budget, Finance, Judiciary, and Indian Affairs. In contrast to his Democratic colleague and fellow committee member Sherrod Brown, Senator Crapo argues less antagonistically toward David Marcus. Rather than emphasizing a mistrust of Facebook due to its past transgressions, Crapo takes an action-orientated stance and expresses concern for the privacy and data rights of consumers.

Senator Crapo argues that the creation of Libra is an event that should spur Congress to establish the “rules of the road” for digital currencies in a manner that respects the rights of consumers. Crapo leans heavily into the claim that “Congress needs to act to give individuals real control over data” because of the vast amounts of user data generated by both social media and financial activity. According to Crapo, if Facebook and the Libra Association are permitted to proceed, they must do so with an understanding of the following three premises:

  1. Individuals are the rightful owners of their data;
  2. Individuals should be granted privacy rights which must in turn be protected through avenues of informed consent;
  3. Individuals are entitled to know what data is being gathered and how it is being used.

Senator Crapo’s stance shares commonalities with the view of Benoit Coeure, Executive Board Member of the ECB. In the past, Coeure worked as the Deputy Director General of the French Treasury, and he has held numerous other posts at the French Treasury between 1997 and 2011. On September 17, 2019, Coeure delivered a speech called “Digital challenges to the international monetary and financial system” at the Central Bank of Luxembourg-Toulouse School of Economics conference. In short, he sees the potential of digital currencies to transform the market, so long as the private actors creating these currencies “conform to international anti-money laundering and know-your-customer regulation.”

Unlike his ECB colleague Yves Mersch, Coeure is much less suspicious of digital currencies, and speaks of the need to meet the changing demands and expectations of consumers in the digital era. Coeure is open to the potential benefits of “stablecoins” in particular, and argues that the possibility of “something special about these currencies that could allow them to compete more effectively with the US dollar” is worth entertaining, but only with the understanding that proper regulatory frameworks must be enforced. For as Coeure states, “regulatory hurdles will be set very high for these initiatives to get off the ground.”

As Coeure’s speech concludes, his view again diverges from his colleague Yves Mersch. Coeure reminds his audience that rather than disallowing the creation of private currencies, one course of action available to policy makers is to ensure “that private systems will thrive in a space that respects our common global policy priorities.” For Coeure, such an environment will allow “market-based and public payment systems [to] effectively complement each other,” therefore addressing the changing demands of modern consumers and the necessity to comply with established and emerging financial regulation.


Today, more than four months after Facebook’s Libra announcement, the fate of the digital currency remains uncertain. Reactions from the general public to Facebook’s plan have been mixed at best, trending from skeptical unease to incredulous outrage. Additionally, the combination of regulatory uncertainty and heightened scrutiny from policy makers has caused a number of Facebook’s prominent corporate partners to revoke their initial support for the initiative, canceling plans to join the Libra Association. The Verge reports that as of October 11, PayPal, Visa, Mastercard, eBay, and Stripe have all officially exited the nascent corporate coalition, giving rise to increased skepticism of Facebook’s capacity to act as a successful shepherd of Libra from day one. 

Despite the lonely road ahead, Congressional hearings are set to continue, and Facebook CEO Mark Zuckerberg is scheduled to testify before the House Financial Services Committee on October 23, 2019. While the Facebook founder’s strategy for the upcoming hearing remains unknown, if recent attrition at the Libra Association is any indication, Zuckerberg would do well to speak directly to his allies in the private sphere and make the case for Facebook as a competent and responsible partner, even if government officials and central bankers are unlikely to agree.

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The Institutional Trust Objection to Facebook’s Libra

Facebook should not be permitted to proceed with the creation of Libra. Facebook cannot be trusted when it comes to financial services. Libra will damage the integrity of the global financial system by eroding public trust in the institutions that back our money.

One of the committee members present to make an official statement at the July 16 Senate hearing was Ohio Senator Sherrod Brown, who was elected to the Senate in 2006 and has served as the ranking member of the US Senate Committee on Banking, Housing and Urban Affairs since 2015. In the hearing mentioned above, Sen. Brown criticized Facebook and its executive team, comparing them to child arsonists who view every burned-down house as merely another learning opportunity. As the Senator’s official statement from the hearing claims, “Facebook has demonstrated, through scandal after scandal, that it does not deserve our trust, and that it should be treated like the profit-seeking corporation it is, just like any other company.”

To support his claim of Facebook’s untrustworthiness, the Senator cites several troubling incidents from Facebook’s recent past. He speaks to the ways in which Facebook has disrupted the newspaper industry and consequently redirected profits away from real journalists and into its own coffers. Senator Brown also cites past psychological experiments Facebook has run on its users in order to ascertain new ways of increasing engagement across the platform. Finally, and perhaps most distressingly, the Senator cites a UN report detailing the ways in which the Facebook platform was used to spread hate, incite violence, and fuel a genocide against the Rohingya people in Myanmar beginning in late 2016. According to Sen. Brown, Facebook and its executive team have “proven over and over that they don’t understand governing or accountability.” Senator Brown concludes his statement by arguing that “this is a recipe for more corporate power over markets and consumers, and fewer protections for ordinary people.”

Meanwhile, the central bankers of Europe have not been bashful about their skeptical stance toward Libra. Yves Mersch, Executive Board Member of the European Central Bank, delivered a speech entitled “Money and private currencies: reflections on Libra,”on September 2, 2019 at the ECB Legal Conference in Frankfurt, Germany. Echoing Sherrod Brown’s emphasis on the role of trust with regard to monetary policy, Mersch argues that trust is an essential element to money’s ability to perform its function. Further, trust in money is derived from the independent institutions that maintain the stability and reliability of the financial system more broadly, e.g. the ECB and Federal Reserve. As Mersch states, “Only an independent central bank with a strong mandate can provide the institutional backing necessary to issue reliable forms of money and rigorously preserve public trust in them.”

Returning specifically to the context of Facebook, which has “a questionable track record in matters of trust,” according to Mersch, the Libra ecosystem is not only complex, but “cartel-like.” In other words, Mersch’s view is that the governance system proposed by Facebook (the Libra Association) lacks the fundamental underpinnings of institutional trust that support traditional sovereign currencies. Such a system will place control of the Libra money supply in the hands of private corporate actors who are “only accountable to their shareholders” and who have “privileged access to private data that they can abusively monetize.” In sum, Mersch argues that Libra’s promise is a tempting “siren’s call,” that leads only to disaster because it entails abandoning “the safety and soundness of established payment solutions and channels.”

Senator Brown argues that because of its history of far-reaching transgressions, Facebook is not to be trusted. In the words of the Senator, “We would be crazy to give them [Facebook] a chance to experiment with people’s bank accounts.” For both Brown and Mersch, the emphasis on trust marking the standard by which Facebook should be judged is key. As argued by Yves Mersch, this is because trust in money is derived from trust in the institutions that back the money. In this case, these policy makers claim, because we cannot trust in Facebook, we cannot trust Libra.

In part three of this series, I will explore the perspective of policy makers who argue that while misgivings over Facebook’s past transgressions may be warranted, misgivings alone are insufficient grounds for liberal-democratic institutions to place overly cautious prohibitions or needlessly strict regulations on one of the United States’ largest technology firms and most powerful corporations. Again taken from the US Senate and ECB, these policy makers see the current state of open communication and engagement with regulators as an opportunity to establish a framework that protects consumers and holds Facebook accountable to financial regulations.

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Solution, Objection, Exception: Perspectives on Facebook’s Libra

This is part one of a three part series exploring Libra, a digital currency Facebook and its partners plan to launch in 2020. Parts two and three will be posted over the next few days leading up to Facebook CEO Mark Zuckerberg’s scheduled appearance before the United States House of Representatives’ Financial Services Committee on October 23, 2019.

On June 18, 2019, Facebook announced that it would begin moving forward with plans to launch Libra, its global digital currency initiative. Facebook envisions a future where Libra encourages greater economic participation for its 2.4 billion users as they pay fewer fees over time and engage in financial transactions with greater security. Such a complex undertaking will not only require support from Facebook’s global corporate partners, but regulatory approval from policy makers around the world as well. Should Facebook be permitted to proceed with the creation of Libra? In this series, I will explore three prospective answers to this question.

First, I’ll explore the view of Facebook and other digital asset advocates as delivered via written testimony to the United States Senate by David Marcus, Facebook’s head of Calibra, and Jeremy Allaire, CEO of Circle, a financial services company specializing in digital assets. They have positioned the digital currency as a solution: a low-cost, secure, and efficient way to make financial transactions and send peer-to-peer payments by utilizing Facebook’s platform and blockchain technology.

Representing a second perspective, I will discuss arguments from United States Senator Sherrod Brown and European Central Bank (ECB) Executive Board Member Yves Mersch. These objectors share a common concern over the potential consequences of trusting the money supply to a corporation with a past as sordid as Facebook’s. These policy makers argue that because we cannot trust Facebook, we should not trust Libra.

The final perspective explored is represented by Senator Mike Crapo and ECB Executive Board Member Benoit Coeure. Being less suspicious of Facebook’s ability to act as a responsible steward for Libra, they argue that if the right set of rules can be worked out, a blanket prohibition against the creation of Libra may not be the most prudent course of action.

Given the scale of the global financial system and the number of Facebook users worldwide, stakes are high. The risk of enacting nearsighted policy prior to properly understanding the complexities of the issue looms darkly over the heads of central bankers and Federal regulators, all of whom continue to monitor Facebook’s movement on Libra with rapt attention.

The Digital Currency Solution

Facebook should be permitted to proceed with the creation of Libra because while the status quo leaves many underbanked and subject to excessive fees, Libra offers 2.4 billion users with “a more efficient, low-cost, and secure alternative” to use and send money across borders.

In a US Senate hearing held on July 16, 2019 before the Committee on Banking, Housing, and Urban Affairs, Facebook’s former Vice President of Messaging David Marcus provided testimony about Facebook’s plan for Libra. Marcus, who is also the former president of PayPal, recently transitioned to a new role within Facebook as he took the reins of Calibra: Facebook’s upcoming virtual wallet app designed to hold Libra tokens and facilitate digital payments. Marcus was the sole witness at the Senate hearing, which was fittingly called Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.

Two weeks after David Marcus delivered his remarks and answered questions from Senators, the Committee held another hearing on July 30, 2019. With a total of four witnesses called to testify, this hearing was wider-reaching and called Examining Regulatory Frameworks for Digital Currencies and Blockchain. Jeremy Allaire, CEO of Circle Internet Financial, a digital asset services firm, was the first witness to testify. By contemplating Marcus’s July 16 remarks along with the testimony of Jeremy Allaire on July 30, the Digital Currency Solution perspective is reified.

As Marcus states, “The goal of Libra is straightforward: A digital currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association.” By establishing the 100-member Libra Association based in Switzerland, Facebook claims that it will not exert undue influence over the currency as it is minted because Facebook’s single seat in the Libra Association will prevent it from doing so. Additionally, there are a host of technical benefits to embracing blockchain as the underlying technology upon which to build the Libra ecosystem. As attested to by Allaire, digital currencies built on blockchain “can be easily stored, transferred, traded, and exchanged, while providing utility to users and benefits to businesses, all within a public infrastructure that is highly secure, tamper-proof, open, and interoperable.”

But the potential of an emerging technology is far from the only reason Marcus utilizes as grounds for creating Libra. The global financial system, Marcus argues, is currently facing a crisis of the underbanked, a term used to describe millions of people around the world who lack access to basic financial services at a reasonable cost. “The status quo is not working for many,” Marcus argues. “It is too expensive for people around the world to use and transfer their money. We believe Libra can offer a more efficient, low-cost, and secure alternative.”

Statements from David Marcus and Jeremy Allaire aside, not everyone is as optimistic about the possibility of our global financial system becoming another piece of the puzzle that is Facebook’s already bloated private-sector portfolio. As we will see in the next part of this series, at least one group of policy makers from the United States and European Union’s Central Bank strongly object to permitting Facebook to proceed with the creation of Libra.

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A Note About Facebook’s Walled Garden

I didn’t stop using Facebook because of a personal disagreement with its leaky privacy policy or its advertising strategy. I stopped using Facebook because of its increasing resemblance to Aol before becoming a content company. I disagree with the walled-garden approach to online life because I believe it’s harmful to the open web. If I can avoid it, I try not to invest my personal data in services where I see this happening.

I actively prefer Google+ over Facebook even though the interests of the two companies may be aligned when it comes to the monetization of user data. The difference is that Google benefits when we use the entire web—even the parts outside Google—and is thus incentivized to promote access to the open web. With Facebook it is the opposite. Less time spent on Facebook means fewer dollars pouring into the Facebook coffers.

There’s so much more to the web than Facebook, but if Facebook had its way, it would forbid users from posting links to the outside world. It already warns users when they click links that lead to non-Facebook domains.

The current state of Facebook is one that encourages users to fear links and embrace likes. The future of Facebook is one that demonizes the very standards and practices that enabled its creation in the first place.

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