Gary Gensler Testifies before Congress on Libra

Gary Gensler, Professor of the Practice at MIT Sloan School of Management, testified before the House Financial Service Committee on July 17, 2019, examining Facebook’s proposed cryptocurrency, Libra, and its impact on consumer, investors and the American financial system.

Gensler pointed out that once fully established in public policy frameworks, Libra may help spur greater competition in payments, potentially enhancing access and reducing costs. But there remains a critical need to protect investors and consumers, ensure financial stability, and guard against illicit activities. He testified that the Libra Reserve, in essence, is a pooled investment vehicle that should at a minimum, be regulated by the Securities and Exchange Commission, with the Libra Association registering as an investment advisor. He also asserted that there is some basis, however, also to consider the Libra Reserve as a bank or to apply bank-like regulation to it.

Gensler asserted it would be imprudent to ignore macroprudential and economic considerations given the sheer reach of Facebook along with Libra Association members. The risks posed to the rest of the economy if the project were to fail and monetary policy implications largely would be dependent upon the success of the project. He also made clear that maintaining the new digital token on the Libra Blockchain raises many challenges similar to those that Bitcoin and other cryptocurrencies have presented: giving bad actors new ways to conduct old crimes.

Lastly, he explained that while international coordination on policy will be sought, the history of financial innovation shows that regulatory arbitrage often occurs. Regulatory arbitrage can also be a challenge within a single jurisdiction, particularly when activities arise outside of traditionally regulated entities. To avoid such arbitrage, it will be important, where possible, to look through to the underlying economics of the Libra activities and regulate them for what they are.

Read Gensler’s complete testimony here.

Read Gensler’s oral comments here.