Kristin McManus*
On June 16, 2019, Facebook CEO Mark Zuckerberg formally announced the company’s plans to create a new digital cryptocurrency to be known as “Libra,” which will operate under Calibra, a subsidiary of Facebook. See Bill Chapple, Facebook Unveils Libra Cryptocurrency, Sets Launch For 2020, Nat’l Pub. Radio (June 18, 2019, 12:12 PM), https://www.npr.org/2019/06/18/733701971/facebook-unveils-libra-cryptocurrency-sets-launch-for-2020. The Libra Association released a white paper detailing its mission and outlining its plans for “a new decentralized blockchain, a low-volatility cryptocurrency, and a smart contract platform that together aim to create a new opportunity for responsible financial services innovation.” Libra Ass’n Members, An Introduction to Libra (July 23, 2019). The principal aims of Libra are: increasing financial inclusion worldwide, providing a system that will reduce transaction costs of monetary transfers, and providing alternate means of funding for small businesses that have been declined by traditional lenders. See Osman Gazi Güçlütürk, Facebook’s Libra and Regulatory Issues, Medium (June 22, 2019), https://medium.com/@ogucluturk/facebooks-libra-and-regulatory-issues-3f4c3a677bd. On paper, this sounds like a compelling addition to the current system, however, the Libra Association’s white paper is short on details and big on promises. Eric Posner, The Trouble Starts if Facebook’s New Currency Succeeds, Atlantic (June 25, 2019), https://www.theatlantic.com/ideas/archive/2019/06/dont-trust-libra-facebooks-new-cryptocurrency/592450/.
Critics of Libra are quick to cite a number of high-profile instances of criminal misconduct that arose out of other cryptocurrencies, such as Bitcoin, which included the creation of an online worldwide drug bazaar, massive hacking schemes, and a multibillion-dollar money laundering operation. See David Adler, Silk Road: The Dark Side of Cryptocurrency, Fordham U.: Fordham J. Corp. & Fin. L. (Feb. 21, 2018), https://news.law.fordham.edu/jcfl/2018/02/21/silk-road-the-dark-side-of-cryptocurrency/. Additionally, there is an overarching question of how to regulate this multinational digital banking operation. See Güçlütürk, supra. Countries around the world, including England, France, and the United States, have expressed initial regulatory concerns regarding Libra. Id. In particular, these concerns surround privacy, the protection of national banks, prevention against Libra being used to fund terrorism, and the possibility of destabilizing the global financial order. See id.
I. How Will Libra Work?
The Libra Association states that Libra is “a stable currency built on a secure and open-source blockchain [(a system in which a record of transactions are maintained across several computers linked in a peer-to-peer network)], backed by a reserve of real assets, and governed by an independent association.” Libra Ass’n Members, supra. The vision for Libra is to aid millions of people who do not have traditional bank accounts, as well as those who do, access banking while reducing transaction costs and providing a new decentralized financial system. See Nathanial Popper & Mike Isaac, How Libra, Facebook’s Cryptocurrency, Would Work for You, N.Y. Times (June 18, 2019), https://www.nytimes.com/2019/06/18/technology/how-libra-would-work-for-you.html. Libra is built out of many of the same systems as Bitcoin, another well-known cryptocurrency, but unlike Bitcoin, it is backed up by a “basket” of international currencies to maintain a stable value. Id. This means that Libra can be exchanged for real currency or transferred to a brick and mortar bank, which provides more stability than traditional cryptocurrencies. See id.
To access Libra, its users will set up a digital Calibra wallet and obtain Libras in exchange for national currency. See Posner, supra. The currency exchanged for Libras will be transferred to the Libra reserve, a group of accounts maintained by financial custodians, to be held there or used to buy low-risk government bonds or other currency. See id. The user can then send or receive Libras, cash in Libras, and pay for merchandise using the Calibra wallet. See id. One of the essential points from Libra’s white paper is that it calls for collaboration and innovation with both the financial sectors and the regulators of the countries in which it will operate. See Libra Ass’n Members, supra. This is in contrast to other cryptocurrencies, in that other cryptocurrencies were initially created to evade regulation. Güçlütürk, supra. However, the Libra Association fails to detail exactly how they will collaborate with regulators, leaving agencies around the world scrambling to find an answer. See Posner, supra.
II. Regulatory Concerns
The regulatory concerns regarding Libra are far from few. Facebook heightens these concerns due to its immense global reach. See Güçlütürk, supra. Facebook currently has 2.4 billion users. Posner, supra. If the Libra Association’s promise holds true, Facebook members will be able to “seamlessly jump from their Facebook accounts to their Calibra wallets to spend money, [and] many of them will do so.” Id. In fact, the Libra Association hopes that this will incentivize other huge companies to integrate Libra into their platforms, thus compelling more users to join Libra for ease of payment. See id. If this occurs, Libra may become a financial behemoth that drastically affects the global money supply. See id. “Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators . . . have an opportunity to examine these issues and take action.” Taylor Telford, Why Governments Around the World Are Afraid of Libra, Facebook’s Cryptocurrency, Wash. Post (July 12, 2019, 1:11 PM), https://www.washingtonpost.com/business/2019/07/12/why-governments-around-world-are-afraid-libra-facebooks-cryptocurrency/.
However, the problem is: how exactly can Libra be regulated? The Bank of England’s governor, Mark Carney, welcomes Libra with “an open mind, but not an open door.” Güçlütürk, supra. Carney recognizes the need for a viable alternative to traditional banking, emphasizing that “the financial system was outdated and denying funds that startups and other smaller companies need to expand.” Id. He proposes that for England to regulate Libra, it would first rely on the major financial institutions and banks to have direct financial oversight of the cryptocurrency, which is in line with Libra’s collaboration goal. See id.
In addition, the French Minister of Economy, Bruno Le Maire, launched a task force to study how it can be ensured that cryptocurrency projects, such as Libra, can be “covered and governed by regulations such as AML and consumer protection rules.” Id. Le Maire’s main concern is securing a guarantee that Libra will not be used to fund terrorism or crime, highlighting the overarching focus on consumer protection. Id. Overall, these countries seem to be open to Libra’s mission but stress the importance of further studying the minutiae of regulation and protecting the legal and financial rights of their citizens. See id.
In contrast, Maxine Waters, the Chairwoman of the U.S. House of Representatives Financial Services Committee, called for Facebook to halt the development of Libra until it is examined in detail by Congress and other regulators and declared a moratorium on Libra’s launch through her “Keep Big Tech Out of Finance Act.” AnnaMaria Andriotis et al., Inside Facebook’s Botched Attempt to Start a New Cryptocurrency, Wall Street J. (Oct. 16, 2019, 12:19 PM), https://www.wsj.com/articles/facebook-wanted-to-create-a-new-currency-it-wasnt-ready-for-the-backlash-11571242795. Moreover, Representative Patrick McHenry requested a hearing regarding the many questions surrounding the “scope and scale of the project and how it will conform to our global regulatory framework.” Id. Libra also faces regulation from the Securities and Exchange Commission (SEC). See Gregory Barber, Everyone Wants Facebook’s Libra to Be Regulated. But How?, Wired (July 18, 2019, 7:00 AM), https://www.wired.com/story/everyone-wants-facebooks-libra-regulated-but-how/. The SEC is currently discussing whether Libra is a security, as some argue that Libra most resembles an exchange-traded fund. See id.
Regardless of whether the U.S. decides to regulate Libra, Facebook’s proposed currency has forced the Federal Reserve, as well as leaders worldwide, to consider how cryptocurrency must be approached and regulated in an increasingly digital economy. See Zachary Warmbrodt, Fear of Facebook Spurs Momentum for Fed to Build Its Own Digital Currency, Politico (Oct. 15, 2019, 5:49 PM), https://www.politico.com/news/2019/10/15/facebook-federal-reserve-digital-currency-047477. Lawmakers recently raised a novel approach, which suggests that the U.S. create its own government-backed virtual currency to compete with Libra, though the discussions are informal at this point. See id.
III. Conclusion
For now, Facebook and the Libra Association made it clear that they will not officially launch Libra until they are at least able to satisfy U.S. regulatory concerns. See Ken Sweet, Facebook Moves Forward with Digital Currency ‘Libra’ Despite High-Profile Defections, AP News (Oct. 14, 2019), https://apnews.com/61d11a874ea74eb3a8b3298522a7d475. While the future of Libra in the worldwide marketplace remains unclear, it is certain that the deliberation and development of digital currencies is here to stay. See Gerald P. Dwyer, Cryptocurrencies Are Here to Stay, Am. Inst. for Econ. Res. (Mar. 15, 2019), https://www.aier.org/article/cryptocurrencies-are-here-to-stay/. If anything, the announcement of Libra has fast-forwarded the discussion of a government-run virtual currency and is sure to be a topic of future debates. See Warmbrodt, supra.
*Kristin McManus is a second-year evening student at the University of Baltimore School of Law, where she serves as a staff editor for Law Review and is a Distinguished Scholar of the Royal Graham Shannonhouse III Honor Society. Kristin is Vice President of Students Supporting the Women’s Law Center, Law Scholar for Professor Jack Lynch’s Civil Procedure class and currently works full time as a paralegal for DeCaro, Doran, Siciliano, Gallagher & DeBlasis, LLP.
University of Baltimore Law Review 