Facebook CEO Says Libra Won’t Launch Until U.S. Approves

(Bloomberg) -- Mark Zuckerberg plans to defend Facebook Inc.’s Libra project before a congressional panel on Wednesday, saying the cryptocurrency won’t be launched without approval from the U.S. government.

In prepared remarks ahead of a hearing in the House Financial Services Committee, he argued the company is seeking to offer an affordable solution to existing methods of sending money abroad.

“People pay far too high a cost -- and have to wait far too long -- to send money home to their families,” wrote Zuckerberg, chief executive officer of the world’s largest social network. “The current system is failing them.”

The hearing is focused on Facebook’s impact on the financial services and housing sectors, so Libra will be a major focus. But questions are likely to range into other topics that have caused controversy for the company, including user privacy, election ads and its targeted-advertising business.

Libra has faced intense criticism from politicians and lawmakers. When David Marcus, the executive in charge of the project, testified before the same committee in July, one of the main concerns was Facebook’s deep involvement. Other questions raised by regulators have included Libra’s potential to become a currency that governments have less control over -- possibly enabling criminal activity -- and whether Facebook should be trusted with the data generated by transactions on the platform. That perception problem has not been lost on Zuckerberg.

“This is something that needs to get built, but I understand we’re not the ideal messenger right now,” he wrote in his testimony. “We’ve faced a lot of issues over the past few years, and I’m sure people wish it was anyone but Facebook putting this idea forward.”

If Facebook is prevented from building a new global cryptocurrency, tech companies in other countries like China might step in to take advantage of the opportunity, the CEO warned.

“While we debate these issues, the rest of the world isn’t waiting,” he wrote. “If America doesn’t innovate, our financial leadership is not guaranteed.”

The Libra Association, the new currency’s governing body, was officially created last week, which means Facebook is now just one of 21 members, each with the same voting control over important decisions. That means Zuckerberg won’t technically be able to make commitments about the currency or its rollout.

“We don’t expect to be leading those efforts going forward,” Zuckerberg said in his written testimony, released Tuesday. “The Libra Association has been created, has a governance structure in place, and will be driving the project from now on.”

Still, he stressed that Facebook will not be part of launching the Libra payments system anywhere in the world until U.S. regulators approve. “Last time I testified before Congress I talked about taking a broader view of our responsibility. That includes making sure our services are used for good and preventing harm,” he wrote.

Read more: Facebook Shares Fall as State Antitrust Investigation Widens

Members of the committee will have high expectations for the CEO, whose company is still very much the face of the project. One thing he will be able to discuss is how Facebook plans to integrate the new currency into existing products, like its WhatsApp and Messenger mobile apps. Facebook’s main social network has more than 2 billion users, and altogether it owns four separate digital platforms that have at least a billion users each.

“You’ve got a huge wealth of data that they’ve harvested from their users’ activities,” Representative Warren Davidson, a Republican from Ohio who is on the committee, said. “Do you now mingle that same database with financial transactions?”

Even as it has come under fire since unveiling the project in June, Facebook has sought to keep the focus on the primary goal for Libra -- to fill a real need in the space of international money transfers.

People are sending money to low- and middle-income countries more than ever, but the cost of doing so has remained high. According to an April report from the World Bank, annual remittance flows to these countries reached $529 billion in 2018, an increase of almost 10% over the previous record high of $483 billion in 2017. During that time, the cost of sending $200 abroad was still high, at 7%, the report said. Using a bank is often the most expensive way to send money, with an average fee of 11% in the first quarter of 2019, the World Bank said.

--With assistance from Sarah Frier.

To contact the reporters on this story: Julie Verhage in New York at jverhage2@bloomberg.net;Kurt Wagner in San Francisco at kwagner71@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

©2019 Bloomberg L.P.