Facebook in its latest quarterly report to the SEC warns that, although it expects to launch Libra in 2020, there might be certain factors that could stop it from succeeding. That information was included in the risks factors section of their latest quarterly report, where there is a section dedicated to Libra. Therefore, many internet news outlets tell that there is the possibility that Libra may not see the light.
The Quarterly Report says:
Libra has drawn significant scrutiny from governments and regulators in multiple jurisdictions and we expect that scrutiny to continue.
As this initiative evolves, we may be subject to a variety of laws and regulations in the United States and international jurisdictions, including those governing payments, financial services, and anti-money laundering. In many jurisdictions, the application or interpretation of these laws and regulations is not clear, particularly with respect to evolving laws and regulations that are applied to blockchain and digital currency.
These laws and regulations, as well as any associated inquiries or investigations, may delay or impede the launch of the Libra currency as well as the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business.
In addition, market acceptance of such currency is subject to significant uncertainty. As such, there can be no assurance that Libra or our associated products and services will be made available in a timely manner, or at all.
We do not have significant prior experience with digital currency or blockchain technology, which may adversely affect our ability to successfully develop and market these products and services.
Of course, that is legal stuff to avoid legal risks from investors when its business results don’t match the forecasts included in their quarterly report. There is no doubt that the path of Facebook Libra will be hard. It might be banned in some places, at least initially, but the likelihood of the Libra project to fail is minimal.
The digital transactions business in China alone is moving the equivalent of $15 trillion per year. The potential global market might multiply this figure by 200. Therefore regulators will play their role and make the needed protections to make sure the business behave within the system and user rights are minimally protected.
The Senate Hearing
Today, the US Senate ran a hearing titled “Examining Regulatory Frameworks for Digital Currencies and Blockchain” to interview three expert witnesses: Mr. Jeremy Allaire, co-founder, chairman and CEO Circle on behalf of the Blockchain Association, Dr. Rebecca M. Nelson, specialist in International Trade and Finance, and Law Professor Mehrsa Baradaran, from the University of California.
Technically, the enquiry was for Senators to understand better blockchain technology and digital payment services, but really it was about impartial witnesses to ask them questions about Libra and its potential risks.
Senators do not want to endanger the future of the USA regarding the crypto sector. For instance, Senator Michael Crapo says
These technologies are inevitable, they could be beneficial, and the United States should lead in this sector.
Of course, industry leaders perceive a restrictive atmosphere that led companies of the crypto sector to move overseas.
We are in the process of moving our international facing services and products out of the United States.
Senators were arguing about fraud and risks, while professor Baradaran noted
There is yet to be an innovative technology that has eliminated the risks and frauds and crimes that regulation is meant to combat.
She also believes that moving to blockchain technology will not protect from these risks.
in another moment, senator Crapo brings up Polonex moving to Bermuda. Allaire answers that there is really a problem for crypto assets, fitting into the current definitions of financial assets.
Unfortunately, in the United States, the guidance that the SEC has given is extremely, let’s just say, narrow, in terms of what they deem to not be a security.
Senator Christopher J. Van Hollen, also mentioned, talking about real-time transactions
Our failure to have moved forward with this technology […] is costing millions of Americans, billions of dollars every day.
It seems that the political establishment is more concerned about Facebook than blockchain technology. They seem willing to make sure the US keeps being the leader in this sector, as well.
Libra must face regulators with the stigma of its mother company, Facebook. Therefore, they must convince regulators their rules will ensure Facebook won’t have the ability to cross-match data on wallets and Facebook user accounts. That will apply also to the rest of the Libra Association members, of course. The other issue might come from the Libra reserve being a basket of currencies and debt assets instead of the dollar.
Senator Warner asked:
if there is a basket of currencies backing the Libra, doesn’t that create currency risk?
If you have a 100% reserve, where is Libra going to make money on this?
Senator Crapo points, maybe, one of the most challenging issues Libra will face:
If a digital currency is to become global like Libra seeks to be how does it do that? how does it get global acceptance if it faces 190 countries with different jurisdictional issues, different regulatory systems?