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28 May 2020

Libra Vs. US Congress: All There Is to Know Ahead of Hearings

Libra Vs. US Congress: All There Is to Know Ahead of Hearings

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Then, on the following day, Libra will be reviewed by the House Financial Services Committee.

Financial institutions of numerous countries, including the U.S., Japan, China, France and the United Kingdom, have expressed their concern regarding Facebook — the social media giant that has been surrounded by privacy-related scandals like in 2018 with Cambridge Analytica — having control over users’ sensitive financial data and releasing a digital asset that could potentially undermine their sovereign fiat currencies. .

Libra is a stablecoin-like digital asset and a blockchain-based financial infrastructure project that is lead by Facebook.

The release followed several media reports suggesting that Facebook was developing a cryptocurrency that will facilitate payments across its platforms — WhatsApp, Facebook Messenger and Instagram — which have ostensibly amassed a combined 2.7 billion monthly users.

As Libra tokens are not technically pegged to any given national currency, unlike most stablecoins, the white paper stresses that users will not always be able to redeem the token for a fixed amount of fiat, although the reserve assets have reportedly been chosen to minimize volatility.

Furthermore, “to ensure separation between social and financial data and to build and operate services on its behalf on top of the Libra network,” Facebook has created a regulated subsidiary called Calibra, which will also be responsible for providing the necessary financial infrastructure, namely a digital wallet that will allow users to store Libra tokens and send them to each other.

Facebook has also noted that the software powering the Libra blockchain has been kept open-sourced in order to create an interoperable ecosystem of financial services and to broaden inclusion.

Maxine Waters, chairwoman of the House of Representatives’ Financial Services Committee, called for Facebook to halt the development on its cryptocurrency.

On July 2, the House of Representatives Committee on Financial Services sent another letter to Facebook seniors, effectively requesting the company and its partners to stop the development of the Libra stablecoin and Calibra wallet.

On July 3, Marcus published a blog post, emphasizing that Libra users will not have to put their trust in Facebook.

Marcus then stressed that while Facebook does own the crypto wallet company Calibra as a subsidiary, no financial data will be available to Facebook.

He also said that users are free to use a range of custodial and noncustodial wallets from different companies to store and to make transactions with Libra.

Further, Marcus explained that the purpose of the Libra Association is to “reduce transactions costs and expand access to the financial system using blockchain technology.” Their team intends to comply with applicable Anti-Money Laundering (AML) initiatives, as well as other laws fighting the financing of terrorism and various criminal deeds, he added. .

regulators, except a hearing before the House Financial Services Committee on July 10, during which Federal Reserve Chair Jerome Powell said there needs to be broad satisfaction with the way Facebook is handling regulatory concerns regarding its upcoming cryptocurrency.

Thus, on July 7, European Central Bank (ECB) executive board member Benoit Coeure said that financial regulators must act fast to prepare for Facebook’s Libra.

Although there had been preconditions before, the news agency noted, the adoption may accelerate now that Facebook’s Libra is shaping up to be a competitor to local banks.

He later added that Facebook’s cryptocurrency must comply with AML regulations and seek banking licenses if it offers banking services.

Specifically, Carney said Libra could have genuine use cases if it can conform to regulatory demands, saying, “Anything that works in this world will become instantly systemic and will have to be subject to the highest standards of regulations.” Carney further suggested that Facebook’s cryptocurrency can indeed solve some financial problems:.

In addition, Christopher Woolard, the executive director of strategy and competition at the Financial Conduct Authority, Britain’s financial watchdog, argued that Libra will require close examination.

The forthcoming cryptocurrency’s “size and scale will pose questions for society and government more generally about what is acceptable and desirable in this space,” Christopher Woolard said, adding, “Historically, this may have been a sector that has lived by the mantra of ‘move fast and break things, but the issues raised here require deep thought and detail.”.

Previously, the chairman of the Russian State Duma Committee on Financial Markets, Anatoly Aksakov, said that Facebook’s Libra will not be legally accepted in Russia, as it may pose a threat to the financial system of the country. .

Zhou also urged policymakers to read Facebook’s Libra white paper and said the tech giant’s plans to peg the coin to a basket of fiat currencies, overseen by a not-fot-profit consortium featuring two dozen major companies, could be of interest, as China develops its own sovereign digital currency: “Libra has introduced a concept that will impact the traditional cross-border business and payment system.”

Wang Xin, director of the PBoC research bureau, argued that “if it [Libra] is widely used for payments, cross-border payments in particular, would it be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system?” 

Thus, a Bank of Japan official has reportedly stated that Libra will pose a risk to financial systems by "piggybacking for free on a financial system that takes heavy costs." The central bank representative added, "It will move money into an absolutely virtual world, so it is completely different than other forms of digital payment." 

South Korea’s financial regulator, the Financial Services Commission (FSC), published a report titled “Understanding Libra and Related Trends” last week

Singapore is one of the few countries that have ostensibly held discussions with Facebook about its upcoming Libra cryptocurrency

According to Reuters, Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, has also been in touch with Facebook regarding Libra

Although there is no further information available at the moment, Switzerland’s position regarding the cryptocurrency should be crucial for the project, given that the Libra Association is based in Zug. 

So far, Facebook and Libra Association executives have stated that they will incur sales tax and capital gains taxes

Some experts seem to think that Libra will challenge sovereign currencies to develop instead of just sabotaging them altogether — and possibly revolutionize cross-border remittance as a result

Furthermore, the regulation of Libra — which is likely to happen, given the scale of the political pushback that Facebook has been facing — can further tighten the scrutiny in regard to other, more conventional cryptocurrencies, as financial watchdogs are now rushed to develop a new framework

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