At yesterday’s Senate Banking Committee hearing on Libra, the digital currency project led by Facebook with 27 other partners, concerns about its potential to undermine U.S. national security featured prominently. Senators from across the political spectrum, including Arkansas’ Tom Cotton and New Jersey’s Bob Menendez, suggested that Libra might lend itself to the scheming of malicious actors and U.S. strategic foes, a worry expressed the day before by Treasury Secretary Mnuchin.
How vulnerable will Libra be to criminal uses? A careful examination of the digital currency’s mechanics and its likely employment by financial services providers, suggests that policymakers have reacted prematurely. In fact, cryptocurrencies are significantly less useful to criminals than cash, because they leave a public record of transactions. Furthermore, Libra is even less useful than other cryptocurrencies because its management by gatekeepers means that users will not be able to conceal their identity in the limited ways available to users of open-access cryptocurrencies such as Bitcoin.
As with their warnings about systemic risk and monopoly, policymakers’ concerns about the national security risks of Libra lack a firm foundation. This post, the third in a series on Libra, discusses why.