Facebook's Libra called 'a dangerous liability' by anti-trust advocacy group

Open Markets Institute submitted its brief in advance of Tuesday’s Senate hearing on Facebook’s cryptocurrency plans

(FILES) This file photo taken on April 30, 2019 shows the Facebook logo displayed during the F8 Facebook Developers conference in San Jose, California.  Facebook unveiled on June 18, 2019 its global crypto-currency "Libra," in a new initiative in payments for the world's biggest social network with the potential to bring crypto-money out of the shadows and into the mainstream.

 / AFP / JUSTIN SULLIVAN
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A day before the head of Facebook's blockchain subsidiary was set to defend its planned digital currency Libra before the US Senate, a leading anti-trust advocacy group filed a stark warning to Congress, calling the social media giant's foray into digital banking "a dangerous liability at home and abroad".

Open Markets Institute submitted its brief in advance of Tuesday’s Senate Banking Committee hearing on Facebook’s plans to launch Libra. The report emphasises Facebook’s troubled track record on data privacy and proposed that Congress consider outlawing non-sovereign currency such as Libra altogether.

“Facebook has violated the privacy of its users and has been involved in a number of scandals that remain unresolved because the Federal Trade Commission continues to fail to curtail its behaviour,” said Open Markets senior fellow Matt Stoller. “Facebook absolutely can’t be trusted to manage international currency transactions and banking.”

The primary risks of Facebook’s Libra currency, according to Open Markets, include its potential to facilitate money laundering and terrorist financing, enable anti-competitive activity as the social media juggernaut gets into finance and the creation of "new coercive forms" of debt collection.

The advocacy group released its report on the same day the US secretary of the Treasury took the unusual step of holding a press conference to voice his concerns over Libra.

Since the world's biggest social media company announced its plans to roll out its own cryptocurrency a month ago, Facebook has faced swift backlash from concerned regulators. Meanwhile, cryptocurrency markets have whipsawed as world leaders sound off on their views of digital forms of currency.

For example, Bitcoin slumped in another large weekend of trading after US President Donald Trump criticised cryptocurrencies late last week. The largest cryptocurrency by market capitalisation had plummeted as much as 15 per cent between trading on Friday and Monday, briefly falling as low as $9,980. Other coins also fell: Ethereum dropped as much as 23 per cent and Litecoin was down 17 per cent, Bloomberg reported.

While Facebook faces battles ahead over how it will protect Libra users from fraud and prevent it from becoming a tool for criminal behaviour, it also faces basic questions over how a zero-cost cryptocurrency will work.

"Inefficiency abounds in the modern payments network," Open Markets acknowledged in its report. "However, it is far from clear that Libra can offer a global payments service that costs little to nothing for average users" as it has pledged.

The advocacy group said that the traditional financial system has built in the associated costs for policing fraud and settling disputes between merchants, customers and between businesses - while Libra has yet to address how it will pay for consumer protection services.

"While credit card fees are much maligned, for example, a majority of those fees, at around 2 to 3 per cent per transaction ... goes toward things like rewards and fraud prevention. The network fees are a sliver of that, around 5 cents, compared with $1.63 for Bitcoin transaction processing, and 12 cents for the Ethereum cryptocurrency.”

Libra has yet to release specifics on how it will pay to settle fraud. Facebook subsidiary Calibra, which oversees Libra, has said that “in the event we find an unauthorised transaction has taken place, Calibra will offer the appropriate party a full refund”.

Facebook said on Monday it would not proceed with the launch of its Libra cryptocurrency until all regulatory and oversight concerns are addressed.