Government Scares Companies Away From Facebook's Libra Project

After senators sent threatening letters to Visa, Mastercard, and Stripe, the companies "decided" not to sign on to the online payment system.

Last week, Democratic Sens. Brian Schatz (Hawaii) and Sherrod Brown (Ohio) sent letters to leadership at Visa, Mastercard, and Stripe, encouraging them to pull out of Libra, a planned cryptocurrency project spearheaded by Facebook.

Among other concerns, the senators griped that Facebook "has not provided a clear plan for how it will prevent Libra from facilitating criminal and terrorist financing, destabilizing the global financial system, interfering with monetary policy, or exposing consumers to risks currently limited to accredited investors." They then raised the issue of child sex abuse photos and videos, claiming such things would be facilitated by combining encrypted messaging with encrypted payments.

"If you take this on," the senators warned, "you can expect a high level of scrutiny from regulators not only on Libra-related payment activities, but on all payment activities."

The letter of concern—or threat—from government bullies seems to have had its intended effect. Within days, all three companies (plus other prominent would-be partners) ran away scared and abandoned the project.

At least for now. A Visa spokesperson told The Verge that while the company will not be joining the Libra Association right now, "our ultimate decision will be determined by a number of factors, including the Association's ability to fully satisfy all requisite regulatory expectations."

Note that last clause, a pretty clear echo of the senators' threats. Now Libra doesn't have any partner capable of payment processing (especially since PayPal already pulled out). Stripe and eBay also replied to The Verge with vague declarations of non-cooperation with Libra while leaving door open for signing on in the future.

The first meeting of the Libra Association Council is happening today in Geneva, Switzerland. Facebook chieftain Mark Zuckerberg is scheduled to testify next week before the House Financial Services Committee, and the government's fears about Libra will no doubt be further piled on him.

As Jim Epstein previously wrote at Reason, Libra is:

a useful reminder that Silicon Valley can't ever compete with bitcoin's mission of reclaiming control of money from the state….Libra is best understood as PayPal 2.0, and yet the white paper invites specious comparisons to bitcoin, noting that "existing blockchain systems have yet to reach mainstream adoption."…

The difference is that bitcoin is a decentralized technology that nobody controls…Libra's engineering hurdles are comparatively simple because its a centralized payment system run by a bunch of big companies…Libra is fundamentally a top-down system that runs using a database, which will never change.

Why is bitcoin's decentralization worth all that extra time and effort? Because governments can't stop it.

Epstein foresaw exactly this week's outcome: "Libra, on the other hand, will be controlled by a handful of big companies that will have no choice but to comply with government dictates."

Reason TV was also prescient on the threats that an operation such as Libra faced from government that other cryptocoins such as bitcoin do not:

Comments

[icannotread]

Having your money owned by a company that is free from liability seems like a safe bet.

[NOYB2]

Companies aren't "free from liability"; their liability is just limited to their net worth. In the case of Facebook, that's a lot better than any government.

I mean, the US government steals trillions in value every year from people who hold US dollars and I don't see that getting reimbursed.

[icannotread]

If a user does something that results in you losing funds can they be held liable? I can't sue Uber if my driver sucks and he rolls the car. Can't sue Airbnb if something happens at my rental.
I'm not sure how FB plans to operate Libra, but if I could find a way to have CDA 230 protect me from liability and write how my currency operates around that then I would.

[NOYB2]

If a user does something that results in you losing funds can they be held liable?

If you accidentally burn up your cash in a bonfire, can the US government be held liable? No.

[icannotread]

I'm talking theft. If someone uses my credit card I don't have to pay that. The CC company issues me a new card and covers it. With Libra who is liable if someone uses the system in a nefarious way?
Facebook is going to protect themselves against that so even if it is a hole in their system they won't be held liable.
Ask yourself why a company would create a currency that has actual value and then be responsible for it.
As it now looks you would have more protections not using it.

[NOYB2]

With Libra who is liable if someone uses the system in a nefarious way?

From your point of view, it functions just like PayPal; meaning, the crypto-aspect is just happening among members of the Libra association. Presumably, liability would be similar.

Facebook is going to protect themselves against that so even if it is a hole in their system they won’t be held liable.

And you know this how?

Ask yourself why a company would create a currency that has actual value and then be responsible for it.

Libra facilitates domestic and international money transfers. It's potentially more secure and faster than the current banking system, and it's backed by a basket of currencies reducing exchange rate risk. Why are companies creating better, cheaper means of transferring money? Because they make money on providing a cheaper, better service.

As it now looks you would have more protections not using it.

There are dozens of ways of transferring money, cheap, expensive, secure, simple, difficult, fast, slow. This is just one more. It is probably more secure than most, simpler than most, less risky than most, and cheaper than most, in particular for international transfers. Really, why this obsession?

[JesseAz]

Section 230 has been used to block contract disputes. Not taking that chance.

[Dillinger]

>>facilitating criminal and terrorist financing, destabilizing the global financial system, interfering with monetary policy, or exposing consumers to risks currently limited to accredited investors

only the government can sell arms to Syrian rebels and/or oversee monetary risk assessment. oooooh destabilizing the global financial system lol ...

[Longtobefree]

Never let Soros find that out - - - - - - - - -

[Juice]

Sens. Brian Schatz (Hawaii) and Sherrod Brown (Ohio)

Man, they need to pass some landmark legislation together so that we can have the Brown-Schatz Act.

[Greg J]

Facebook Libra is a stupid idea.

Either they're bitcoin like, in which case some of the main users will be slavers, drug deals, pirates, and other criminals. Which quickly leads to it getting shut down

Or else it's a competing currency, just controlled by FB rather than some government. In which case it pisses off other governments, who proceed to shut it down.

Who were the idiots who thought this would ever work?

[Metazoan]

n which case some of the main users will be slavers, drug deals, pirates, and other criminals

This is not true of Bitcoin. Most BTC use is speculation, and the criminals you mention use USD.

[Greg J]

BTC isn't being marketed to Africa, where most of the people with money are criminals of one sort or another

[NOYB2]

Either they’re bitcoin like, in which case some of the main users will be slavers, drug deals, pirates, and other criminals. Which quickly leads to it getting shut down

Bitcoin hasn't been shut down and, since it's not anonymous, isn't used much by criminals.

Or else it’s a competing currency, just controlled by FB rather than some government. In which case it pisses off other governments, who proceed to shut it down.

FB is a private actor and just wants it currency succeed; that is, it has no interest in devaluing its currency. Furthermore, Libra is backed by a basket of currencies. That makes it fundamentally different from fiat currencies by governments. You're right that this pisses off governments, but sooner or later, that is going to happen, and it's going to be good for everybody other than corrupt governments and their cronies.

[Greg J]

Sooner or later the Sun is going to go out, too

[CE]

It's not based on nothing, it's based on a basket full of nothings?

[Halykan]

The point on being based on a basket of currencies means it can't devalue itself, and it's hard for any single backer of one of those currencies to manipulate the value of Libra. That said, given the dollar's reserve status around the globe, I think a sufficiently motivated commission from the Fed could probably find a way to move it around a fair bit if they wanted. And that's assuming they don't just drop the regulatory hammer on it, which seems to be the current favorite.

[icannotread]

"just controlled by FB"

I'd rather trust the government.

[NotAnotherSkippy]

Indeed.

[CE]

Facebook isn't armed, and doesn't operate a prison system controlled by its own judicial system. As far as we know.

[NOYB2]

has not provided a clear plan for how it will prevent Libra from destabilizing the global financial system

I thought the objective was to destroy the current global financial system. That's at least what I was hoping for: get rid of central banks and currency/money supply manipulations by governments.

[NotAnotherSkippy]

No, the objective is capture the global finance system under the control of one company which also happens to be controlled by one man. And Reason is in favor. I guess we're seeing what all of the libertarian inbreeding creates: a brave new world. As long as it doesn't call itself government, there's really no downside or limit to what any private entity can do.

[NOYB2]

No, the objective is capture the global finance system under the control of one company which also happens to be controlled by one man.

How do you think a private company can "capture the global financ[ial] system"? That's just idiotic.

I despise Zuckerberg and his company. But if he can take on the regulators and get one global private currency established, there will soon be others. And that's a good thing.

As long as it doesn’t call itself government, there’s really no downside or limit to what any private entity can do.

Again, that's idiotic. Private companies cannot force you to use their services; and Libra can't force you to use their cryptocurrency. That's what limits them.

If you're posting to a libertarian site, at least learn the basics about free markets.

[Jerryskids]

The first meeting of the Libra Association Council is happening today in Geneva, Switzerland.

The gnomes are running this project? I thought it was the Jews.

[NotAnotherSkippy]

JFC, you think Libra is Paypal 2.0? And you're supposed to be the smart ones?!

[icannotread]

It sounds to me like it's just GTA dollars or Simoleons you can use to buy things outside of the game.
Remember that Simpsons episode where they went to Itchy and Scratchy Land and Homer transferred all of his money to Itchy and Scratchy dollars and then no one accepted the new currency?
I'm getting that vibe from this.

[evanswoodrow]

I really love social networks and understand why many of my peers spend most of their free time there. I recently came across https://gradesfixer.com/free-essay-examples/social-media/ this article on one educational resource and was pleasantly surprised. If you are interested in this topic as much as I do, then this article will be useful to you.

[Jerry B.]

Guess since Sens. Schatz and Brown aren't strong-arming a foreign government for their constituents (and contributors), this wouldn't be an impeachable offense.

[Hank Phillips]

In August-September 1929 former prosecutor Willebrandt explained how the shotgun wedding between the income tax and dry law weaponized the Bureau of Internal Revenue into a prohibition enforcement terror organization. Stock prices immediately began their descent into what we know as The Great Depression, accelerated by arrests of bankers and indictments of glucose and yeast companies, whom they called "criminals." This is simply more of the same.

[IT Shabake]

what the hell is Libra project
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[Mark W. Noonan]

I’m a Liberal/Democrats and I swear these congressional Democrats have lost all their damn marbles.

[Mark W. Noonan]

I’m a Liberal Democrat and this is just nuts

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[gwenshackworth]

Social networking and networks will only grow stronger. Who cares, we are all here to have fun with transgirls