Facebook (META 0.22%) is facing a lot of pushback for Libra, its proposed cryptocurrency, but that's not stopping the social media giant from forging ahead.
Earlier this week, it announced the 21 founding members of its digital token project at the signing of the Libra Association charter in Switzerland. The founding members include Uber, Lyft, Spotify, and PayU, among others.
Missing from the launch were the seven big-name early backers of Libra, who pulled out in recent weeks amid increasing regulatory scrutiny. They include Visa, Mastercard, Stripe, eBay, and MercadoLibre's MercadoPago. PayPal had already quit, and this week, Booking Holdings joined the detractors. According to media reports, JPMorgan Chase and Goldman Sachs turned down offers from Facebook to become founding members. The two Wall Street firms were worried about running afoul of money-laundering rules.
When Facebook first announced Libra in June, it had high hopes for its cryptocurrency, which it's betting will transform the way the world handles money. With Libra, consumers will be able to send money to friends and family and make digital purchases by firing off a message or sending a photo.
Libra will be operated by a nonprofit group based in Switzerland that will oversee the cryptocurrency, which runs on blockchain technology. Facebook still stands to make a lot of money from the endeavor, though. Its digital wallet Calibra will be used to store and exchange the digital tokens. Libra will also give Facebook new revenue streams if people use the digital currency on Facebook's platforms.
Backlash has been fast and furious
Facebook wasn't prepared for the fierce criticism its efforts faced. With the tech company already embroiled in data and privacy scandals that resulted in it paying a $5 billion fine to the Federal Trade Commission, lawmakers, privacy groups, and regulators wondered how it would protect the users of its cryptocurrency. The Cambridge Analytica scandal, in which the now-defunct political consulting firm accessed the data on 87 million Facebook users without their consent, is still fresh in the minds of many. If Facebook has its way, Libra would become the preferred payment method for its more than 2 billion monthly active users. Would their data be any safer?
In July, Rep. Maxine Waters, the chair of the House Financial Services Committee, along with several other lawmakers, sent an open letter to Facebook calling on the company to halt its Libra plans. The lawmakers expressed concerns about the fact that Facebook was creating an "entirely new global financial system" that was located in Switzerland and one that is aimed at rivaling the U.S. dollar. The lawmakers cautioned that if this cryptocurrency was left unchecked, it could put the financial stability of the U.S. and countries around the globe at risk.
The increased attention Libra received from lawmakers was enough to spook the likes of PayPal, MasterCard, and Visa among the others that withdrew. But that was not the only problem Facebook faced as it headed into the signing of the Libra Association Charter this week. It's also likely delaying the launch as it navigates the regulatory landscape. The hoped-for celebration when Facebook scheduled the signing of the charter turned out to have a dark cloud hanging over it.
Facebook isn't giving up
Despite all the odds against it, Facebook is forging ahead, pulling out all the stops to convince the world's skeptics that it is capable of controlling a digital currency that can't be regulated. Its latest attempt: warning regulators of the impending danger from China if Libra fails.
David Marcus, the Facebook executive heading up the Libra initiative, told Bloomberg that China is moving ahead with its own digital payments system, which could have global appeal. That could be a big threat to the U.S. if regulators drag their heels in approving Facebook's digital coin. He painted a picture of an environment five years hence in which a large portion of the world won't have to worry about sanctions from the U.S. because they will have a digital currency waiting in the wings.
Whether that argument will resonate remains to be seen. But one thing is clear: Facebook is going to have to do a lot of work if it wants the world to be comfortable with it controlling an unregulated and anonymous digital token.