On Wednesday, Facebook CEO Mark Zuckerberg will attempt to defend his company’s plans for Libra while testifying on Capitol Hill before the House Financial Services Committee.
At the hearing, Zuckerberg is expected to pitch Libra as a prime example of American innovation that can help “extend” the country’s “financial leadership” and “democratic values.” But he will also acknowledge long-simmering concerns about Facebook (FB) itself, after a long list of privacy scandals as well as mounting antitrust scrutiny.
“I believe this is something that needs to get built, but I understand we’re not the ideal messenger right now,” Zuckerberg is expected to say, according to his prepared testimony released ahead of the hearing. “We’ve faced a lot of issues over the past few years, and I’m sure people wish it was anyone but Facebook putting this idea forward. But there’s a reason we care about this. Facebook is about putting power in people’s hands.”
The stakes are high for Zuckerberg’s performance on Wednesday. Many lawmakers have not ruled out the possibility that they could try to block Libra altogether if they are not satisfied by Zuckerberg’s responses. David Marcus, the Facebook exec who headed up the Libra effort and now runs the company’s subsidiary developing services for users to save and spend Libra, testified before Congress in July, but many lawmakers weren’t entirely satisfied with what they heard.
“It is imperative that we get Mr. Zuckerberg in before the committee,” Rep. Sylvia Garcia, a Texas Democrat, said in an interview with reporters as lawmakers were urging Zuckerberg to testify. “This is his brainchild, his company, he’s the one to have the answers to many of the questions we also raised with Mr. Marcus. Some of the questions that he didn’t answer or didn’t answer fully, I think Mr. Zuckerberg is the one to address those.”
Garcia added: “Until they answer our questions, we cannot allow this to go forward.”
The hearing represents yet another hurdle for the effort to bring Libra to life, which Facebook (FB) and its partners had hoped to do by mid-2020. That timeline now appears uncertain. Five pieces of draft legislation are expected to be discussed during the hearing, many taking direct aim at Libra. One, the “Keep Big Tech Out of Finance Act” that Chairwoman Maxine Waters introduced during the July Libra hearing, would prohibit Facebook and other internet platforms with annual global revenue over $25 billion from becoming financial institutions or offering cryptocurrencies.
Zuckerberg’s testimony comes days after several of the project’s early partners jumped ship, potentially making it harder for Libra to gain regulatory approval.
Fitch Ratings analysts said in a recent statement that Mastercard (MA) and Visa (V) bowing out of the Libra governance organization, which they did along with fellow payments companies PayPal (PYPL), Stripe and Mercado Pago, deprives Libra of “payment specialists with deep regulatory and antitrust experience.” Just one payments company remains in the organization: Dutch firm PayU.
Facebook and Libra’s other backers say they want to work with regulators, and will wait for regulatory approval in order to launch. In the meantime, the group has forged ahead with setting up the early governance structure and articles of association for the Libra Association, which will manage the digital currency. They say Libra could revolutionize the global payments system, making it easier to send money around the world and potentially benefiting the underbanked.
“People pay far too high a cost — and have to wait far too long — to send money home to their families abroad. The current system is failing them,” Zuckerberg said in his prepared testimony.
The digital currency will be managed by an organization comprised of 21 companies, including Facebook. The social networking firm has one seat of five on the board. But Facebook’s involvement — and Libra’s potential access to its more than 2 billion users — nonetheless helped make Libra a bigger concern for regulators.
In addition to acknowledging lawmakers’ concerns with Facebook’s track record, Zuckerberg also attempted to defuse fears about Libra’s potential impact on existing currencies. Zuckerberg said in his prepared remarks that Libra “is not an attempt to create a sovereign currency.” He also noted that Libra will be backed “mostly by dollars,” referencing the Libra Reserve that will back the coin 1:1.
The anticipated makeup of the reserve, beyond Facebook’s statements that it will be comprised of government-backed currencies and debt instruments, has been unclear, leading lawmakers to fear Libra could undermine central banks’ ability to carry out monetary policy.
The hearing will also cover Facebook-related issues beyond Libra. Another piece of legislation to be proposed Wednesday would require Facebook and other internet platforms that profit from collecting and selling ads based on user data to regularly disclose to users what data is being collected and why, as well as spelling out the economic value of their data.