Facebook’s (NASDAQ:FB) proposal to create its own digital currency raises major questions that must must be addressed before the plan to create a coin called Libra moves forward, Federal Chairman Powell said.
“Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability,” Powell told lawmakers at a House Financial Services Committee hearing in Washington. “These are concerns that should be thoroughly and publicly addressed before proceeding.”
Chairwoman Maxine Waters expressed concern about the social-networking giant’s plans for the token and questioned Chairman Powell about the Fed’s thinking on it. Waters and others Democrats have been critical of Facebook’s strategy, and she said the company may ultimately want “to establish a parallel banking and monetary policy system to rival the dollar.”
Mr. Powell said Fed officials had met with Facebook before the company announced its plans last month and the agency has been studying the matter. Staffers from the Fed and other agencies that make up the Financial Stability Oversight Council (FSOC have had discussions on the matter, he said.
“I think it’s highly likely that FSOC will be taking this on in a serious way,” he said.
In response to a question from Representative Patrick McHenry (R-NC) Mr. Powell said the potential for very broad adoption of Facebook’s cryptocurrency raises the possibility that it could pose a threat to the broader financial system.
“If there were problems there associated with money laundering or terrorist financing any of the things we are all focused on, including the company, they would arise to systemically important levels just because of the mere size of the Facebook network,” Mr. Powell said.
He said the Fed does not want to discourage financial innovation,“We just want it to take place in a safe and sound way.”
It is unclear how the Fed and other US financial regulators will exert authority on digital currencies. A system for regulating crypto has not yet been devised.