This blog is written by Sanskriti, a first year law student at DSNLU, Jabalpur
INTRODUCTION
In 2019, when Facebook, the American social media giant, officially announced that it is getting into cryptocurrency business by launching its ambitious project- libra, as a global digital currency, there was a flood of responses coming from all over the world.
But before we dive deep into the topic, let me give an overview of what Libra is. Facebook designed Libra to be a global digital coin that mainly would work on the blockchain technology and would be backed by several real-world currencies to stabilise its price and protect it from swings that we generally see in the other cryptocurrencies. It was planned that libra would have its wallet, known as Calibra and its central reserve called LIBRA RESERVE. And to operate and channelise all the functions, an association was formed along with the 28 partners of this project, Libra Association, a Geneva-based not for profit association. Facebook had lined up a long list of corporate backers for the initiative including some prominent players in the payment space like PayPal, VISA, Mastercard, etc.
But the problem arose just after the announcement of Libra when Facebook placed its idea of cryptocurrency before the world; the regulatory concerns were raised by the policymakers around the world. The concept was heavily scrutinised by the lawmakers and financial authorities of the US and other countries. There were several questions raised by the technology experts and government authorities on the working of Libra as a cryptocurrency. Several observers from the industry of technology started questioning on the privacy matters related to Facebook's Libra.
Apart from surrounding by the regulatory challenges, Libra also got attacked with several legal issues of trademark infringement in European countries due to the similarity of logo with other companies’ logo.
Now the first question that arises in everyone’s mind is; what made Facebook to get into the cryptocurrency world? The basic answer that we get is its worldwide users. According to the current statistics, in the second quarter of 2020, Facebook has 2.7 billion monthly active users on its platform. Simplyput, around 32% of the population of the world are active users on this social media platform. And if a quarter or a small percentage of users start using Libra, then there is no doubt that Facebook's libra would become the largest cryptocurrency within a small period.
But if we look into the past controversies of Facebook, it has always been surrounded by the questions on privacy issues like in Cambridge Analytica Case or getting alleged of influencing voters in the US presidential election by using their private data. And that is why even lawmakers are closely observing the whole aspect of this case. Therefore, this time it would not be easy for the company to pass the regulatory constraints regarding its Digital coin.
THE UNITED STATES REGULATORY RESPONSE
US regulators, experts and politician expressed their concerns just after the announcement made by Facebook in 2019. President Trump tweeted, “If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations just like other Banks.”[i] Similar responses were received from the lawmakers and the US regulators who began to view the implications of such a currency that might create havoc in the banking sector if not regulated properly.
The US lawmaker, Rep. Maxine Waters, the head of House financial Service Committee also called for a halt in the further development of the digital coin till it surpasses all the concerns and challenges related to it. Waters also said that Facebook has data on billions of people and has repeatedly shown a disregard for the protection and careful use of this data and it is expanding its reach to its users in an unchecked manner that might create some serious privacy concerns this time as well.[ii]
On July 16, Facebook’s current chief, David Marcus, testified before the House Financial Services of Senate committee. Then in October, Mark Zuckerberg, the CEO of Facebook testified before the same Financial Service Committee. This was the second time Zuckerberg was grilled by the lawmakers of the country, early on the data privacy concerns related to the Cambridge Analytica case where a political consulting firm hired by the Trump campaign in2016 presidential election, had the access of around 50 million users' private data to influence voting behaviour.
There were several questions that made the CEO uncomfortable to answer during testimony. The main reason was the dropout of several companies from the Libra Project. In early October 2019, due to several backlashes and regulatory concerns made by lawmakers of the US related to Libra, PayPal became the first company to back out from Libra Association. And this led to an exodus of other prominent partners of Facebook like Mastercard, VISA, eBay etc. That is how the lawmakers in the Capitol Hill questioned and challenged the company on its goal to achieve the global cryptocurrency.
EUROPEAN REGULATORY RESPONSE
Views of the European regulators were no different from the US. The Finance Minister of France, Bruno Le Maire, asked for a guarantee from the Facebook that the transaction system of Libra would not be misused for the terror financing, money laundering or any other illicit activity.He also emphasized the statement that the functioning and distribution of any kind of currency must be in the hands of the state and not in the hands of private companies. Markus Ferber, a senior German lawmaker in the European parliament, said in a statement that Facebook's new coin should put regulators on high alert and called on the European Commission to start working on regulatory framework for virtual currencies[iii].
In September 2019, France and Germany both released a joint statement regarding the banning of Libra in their respective countries.They stated that no private enterprise can claim monetary policy which is inherent to the sovereignty of the nation.
But contrary to the responses of Germany and France, Switzerland welcomed this concept proposed by Facebook, Switzerland's Financial Market Supervisory Authority director Mark Branson said on Sept. 12 that the agency is open to international cooperation and oversight of how it regulates Facebook's planned cryptocurrency network.Branson stipulated that Libra’s global significance can only be tackled through international coordination and consultation.[iv]
LEGAL ISSUES SURROUNDING LIBRA
Apart from facing regulatory challenges, Libra also faced several legal proceedings against its logo and name. When Facebook released the logo for its wallet Calibra, it immediately came into the limelight because of getting sued for trademark infringement by Current, the developer of a mobile banking app.
On 10thOct2019, Current filed the complaint in the US District Court of the Southern District of New York. It alleged that design of Calibra’s logo is quite similar to Current’s, which the Fintech company began using in August 2016 whereas Calibra is currently in the process of developing a digital wallet for the Libra stable coin project. The management of the Current sought preliminary investigation in the case and monetary damages.[v]
And Libra Association also tried to register its logo LIBRA as a trademark from its company under European union Intellectual property but failed to apply completely because the proceeding for this application was halted by five opposing companies based in Europe, they alleged that Registering Libra as a trademark may confuse with their logo. Due to these legal issues, Facebook renamed its digital coin as Diem from Libra in last month of 2020 and reached to an end to all the legal issues related to its logo.
ARGUMENTS GIVEN BY FACEBOOK IN FAVOUR OF LIBRA
After looking at all the concerns of different countries regarding Facebook’s digital coin, let’s now discuss the perspective of the social media giant regarding its stable coin. According to the data of 2017, there are around 1.7 billion people in the world that do not have the access to bank facilities, in simple terms they do not have access to the digital mode of payment and are only depended on paper currency.Secondly,the online money transfer that we made through regulated bank authorities tend to work slow and charges high costs too. That is why even if we say that we now have a digital financial sector but still 85% of global transaction happens in cash.
But Libra Association believes that the digital financial services must reach to the poor as well. Many more people should have access to financial services and cheap capital. There must be an open, globalised and low-cost movement of money that will create immense opportunity for all and will enhancecommerce activity around the world.
That is why Facebook claims that the implementation of Libra can improve people’s income by 20% and reduce poverty to a certain level because Libra will be accessible to anyone who has the basic smartphone with a regular data connection and Libra transactions would be quick and easy no matter where are you sending the money or spending it in the market.
CONCLUSION
Now as we know,with the announcement of Libra, Facebook has surely taken a big risk by immersing itself in the business of finance with technology and is currently surrounded by the regulatory issues.
Whether the objective of the social media giant is amicable or not but the lawmakers are already uncomfortable with how Facebook handled privacy around users’ posts and photos. It would be compelling to see how things turn out for Facebook and its digital coin project.
[i]Donald Trump not a fan of Bitcoin, FIRST POST (Dec.28,2020,2:28 PM) https://www.firstpost.com/tech/news-analysis/trump-blasts-bitcoin-facebooks-libra-demands-they-face-banking-regulations-6979281.html [ii]US Lawmakers call for Facebook to pause Cryptocurrency Project, THE HINDU (Dec.28,2020,3:15 PM) https://www.thehindu.com/sci-tech/technology/us-lawmakers-call-for-facebook-to-pause-cryptocurrency-project/article28072762.ece [iii]Pete Schroeder, US regulators call for Facebook to pause Cryptocurrency Project, REUTERS, (Dec.29,2020,6:29 PM) https://www.reuters.com/article/us-facebook-crypto-congress-idUKKCN1TJ2SJ [iv]Ana Alexandre, German gov speaks against the approval of libra in Europe, COINTELEGRAPH, (Dec.30,2020,7:01 PM) https://cointelegraph.com/news/german-govt-speaks-against-approval-of-facebooks-libra-in-europe [v]Omar Faridi, Facebook subsidiary Calibra is being sued for trademark infringement by mobile banking developer Current, CROWDFUND INSIDER, (Dec.30,7:30 PM) https://www.crowdfundinsider.com/2019/10/152811-facebooks-subsidiary-calibra-is-being-sued-for-trademark-infringement-by-mobile-banking-developer-current/
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