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Facebook's Crypto Plan Called ‘Delusional’ as Senate Digs In

Robert Schmidt, Ben Bain and Kurt Wagner

(Bloomberg) -- Republican and Democratic Senators sharply questioned Facebook Inc.’s plan to create its own digital money, adding to a chorus of skepticism across Washington and underscoring the challenges the company faces in getting its cryptocurrency off the ground.

At a hearing Tuesday before the Senate Banking Committee, lawmakers compared the social media giant to a toddler playing with matches who burns the house down, blasted it for repeatedly violating consumers’ privacy and accused the company of cheapening social discourse and polarizing America. Many expressed incredulity that Facebook would be able to safeguard people’s finances.

“Do you really think people should trust Facebook with their hard earned money?” Ohio Senator Sherrod Brown, the top Democrat on the banking panel, asked. “I just think that is delusional.”

Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, credited Facebook for trying to build a faster and less expensive way for consumers to move money around the world, but said he was concerned about the company’s "massive reach and influence" and the vast amount of personal information it keeps.

‘Get This Right’

Facebook’s top executive on the project David Marcus pledged to address their concerns about the token, called Libra. "We will take the time to get this right,” he told the committee, testifying in a packed hearing room.

The senators’ ire isn’t coming as a surprise to the company, which has been reeling after a series of privacy breaches and questions about its role spreading fake news in the 2016 presidential campaign. Among the critics of its crypto plans are President Donald Trump, his Treasury chief Steven Mnuchin and Federal Reserve Chairman Jerome Powell.

Read More: Facebook’s Crypto Woes Deepen as Mnuchin Joins Parade of Critics

Even as the rhetoric rose, Tuesday’s hearing focused attention on how cryptocurrencies should be overseen by the federal government. At least a half dozen agencies, including the Fed, the Securities and Exchange Commission and parts of the Treasury, have some say in the matter but none has taken a lead role.

Authorities across the world have been struggling to figure out how to police virtual coins, which are often used in money laundering and other criminal activities. Some such as Bitcoin have become hugely popular among speculative traders.

“It’s a good idea for us to explore this because quite honestly cryptocurrency now is still kind of the wild, wild west that is not well regulated,” noted Thom Tillis, a North Carolina Republican.

Bitcoin declined during the hearing, dropping as much as 8.9 percent on the day. The currency fell to $9,951.89 at 12:52 p.m. in New York. It’s down more than 16 percent this week.

Protecting Consumers

Marcus said that he didn’t know which agency might oversee Libra but pledged to work with whatever regulator might step up. He also said that the decision to base the cryptocurrency operations in Switzerland was not a move to evade U.S. regulation.

Marcus, who will appear before the House Financial Services Committee Wednesday, pushed back on some of the criticism, explaining that the token isn’t intended to compete with countries’ national currencies and won’t interfere with central banks’ monetary policy. Additionally, he said user data would be protected.

He also stressed that Facebook is just one of dozens of companies involved in Libra, and said that its control over the coin would be limited.

Defending Facebook

At least one senator -- Republican Pat Toomey of Pennsylvania -- stood up for Facebook, saying that efforts to block the Libra launch were“wildly premature” and misguided. “There are tremendous potential benefits in blockchain technology and cryptocurrencies,” Toomey said. “We should be exploring this.”

Mostly, however, lawmakers chose to question Marcus about the series of scandals that have engulfed Facebook in recent years. That included the company’s agreement last week to pay some $5 billion in a record privacy settlement with the Federal Trade Commission, as well as its role in spreading pro-Trump fake news reports in the 2016 campaign.

Senator John Kennedy noted that “Facebook now wants to control the money supply” and asked, “what could go wrong with that?”

The Louisiana Republican hit the company particularly hard on what he said was a slow and dishonest response when it learned that Russians were using the platform to influence the presidential election. He also took Facebook to task for helping to speed the demise of journalism.

"Isn’t it true, and I really want your opinion, that Facebook has chosen to advance a set of values in which truthful reporting has been displaced by flagrant displays of bullshit?"

Marcus replied: “I don’t know how to answer that question.”

(Adds Facebook executive’s comment in fifth paragraph.)

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net;Ben Bain in Washington at bbain2@bloomberg.net;Kurt Wagner in San Francisco at kwagner71@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Molly Schuetz

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