Commentary

Fed Chair Powell Says Facebook's Digital Currency Raises Serious Concerns

Federal Reserve chairman Jerome Powell had an impactful day yesterday. Besides sending the S&P 500 over 3,000 for the first time by signaling a forthcoming interest rate cut, he deflated the cryptocurrency market by telling the House of Representatives Financial Services Committee that Facebook’s proposed digital currency, Libra, “cannot go forward” until serious concerns are addressed.

advertisement

advertisement

“While the project’s sponsors hold out the possibility of public benefits, including improved financial access for consumers, Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” Powell said in response to a question from Maxine Waters (D.-CA), the chairwoman of the committee.

“He said a process of addressing the Fed's concerns should be a ‘patient one’ and that both the Fed and a separate panel of federal regulators known as the Financial Stability Oversight Council was meeting to consider the digital currency in coordination with global policy makers,” Andrew Ackerman writes for the Wall Street Journal.

"Facebook last month unveiled the global digital coin, which will be managed by a governing body called the Libra Association  and through a wallet named Calibra. Facebook is working alongside 27 launch partners for Libra, including PayPal, Visa, Uber, Coinbase, Lyft, Mastercard, Vodafone, eBay and Spotify, but aims to have 100 members in the Libra Association by 2020,” CNET’s Corinne Reichert reminds us.

“Libra, set to launch in the first half of next year, is intended to be used to purchase products, send money internationally and make donations,” Reichert adds.

“Powell’s comments about Libra hit the price of Bitcoin, which fell as much as 7% during his three hours of testimony,” Reuters’ Pete Schroeder and Trevor Hunnicutt report.

“We are very much aligned with the chairman around the need for public discourse on this,” Facebook spokeswoman Elka Looks said in an email to Schroeder and Hunnicutt. “This is why we along with the 27 other Founding Members of the Libra Association made this announcement so far in advance, so that we could engage in constructive discourse on this and get feedback.”

But the regulatory obstacles Libra is facing has some tech executives “expressing doubt that the project will launch by 2020,” writes  CNBC’s Salvador Rodriguez.

“I think two years from now we’re going to be like ‘Do you remember that Facebook thing? Libra?’” Bismarck Lepe, CEO of Wizeline, a San Francisco product development company, tells Rodriquez.

“While the innovation in Libra certainly has potential, we should expect increased scrutiny not just from the federal government, but at the state level too, not to mention regulators in many markets outside the U.S.,” adds Anuj Nayar, financial health officer at LendingClub.  

In his testimony, Powell hinted that a rate cut is likely when the Fed convenes again at the end of the month.

“That the Fed is considering a rate cut at a moment when the United States economy is strong and job market gains are solid underscores Mr. Powell and his colleagues’ concern about the future of a record economic expansion. The Fed expects unemployment to remain low and inflation to gradually increase, but Mr. Powell said that ‘uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook,'” Jeanna Smialek and Matt Phillips write for The New York Times.

Powell has been a frequent target for President Donald Trump, who is prone to tweeting and asserting, in various permutations, that the stock market and economy would be faring much better “if the Fed had done its job properly” under his stewardship.

Yesterday, chairwoman Waters asked Powell what he would do if the president called him and said, “I’m firing you. Pack up. It’s time to go,” Nick Timiraos reports  for The Wall Street Journal.

"Powell responded quietly, ‘Of course I would not do that.’

“‘I can’t hear you,’ Waters replied, to laughter in the packed committee hearing room. ‘My answer would be no,’ he said,” Timiraos concludes.

“The Federal Reserve Act doesn’t explicitly give the U.S. president power to fire the Fed board members. But section 10 has a mysterious little phrase indicating it’s at least possible,” as Patrick W. Watson pointed out for Forbes last year.

“…thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the president,” it reads.

Meanwhile, Powell appears to be one of those thick-skinned folks who has no issue toiling away in a blistering kitchen.

Next story loading loading..