Facebook Inc.’s proposal to create its own digital currency raises major questions that must must be addressed before the plan to create a coin called Libra moves forward, Federal Reserve Chairman Jerome H. Powell said Wednesday.
“Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” Powell told lawmakers at a House Financial Services Committee hearing in Washington. “These are concerns that should be thoroughly and publicly addressed before proceeding.”
Committee Chairwoman Rep. Maxine Waters (D-Los Angeles) expressed concern about the social-networking giant’s plans for the token and questioned Powell about the Fed’s thinking on it. Waters and others Democrats have been critical of Facebook’s strategy, and she said the company may ultimately want “to establish a parallel banking and monetary policy system to rival the dollar.”
Powell said Fed officials had met with Facebook before the company announced its plans last month and the agency has been studying the matter. Staffers from the Fed and other agencies that make up the Financial Stability Oversight Council have had discussions on the matter, Powell said.
“I think it’s highly likely that FSOC will be taking this on in a serious way,” he said.
In response to a question from Rep. Patrick McHenry of North Carolina, the panel’s top Republican, Powell said the potential for very broad adoption of Facebook’s cryptocurrency raises the possibility that it could pose a threat to the broader financial system.
“If there were problems there associated with money laundering or terrorist financing — any of the things we’re all focused on, including the company — they would arise to systemically important levels just because of the mere size of the Facebook network,” Powell said.
He said the Fed doesn’t want to discourage financial innovation.
“We just want it to take place in a safe and sound way,” he said.
It’s unclear how the Fed and other U.S. financial regulators will exert authority on digital currencies. A system for regulating them hasn’t yet been devised.