The Biden administration is taking a whole-of-government approach to the “responsible” development of crypto as well as building a central bank digital currency.
On Wednesday, President Joe Biden signed an executive order on cryptocurrencies that emphasizes the U.S. government’s commitment to ensuring that virtual assets are developed responsibly and foreshadows the development of a digital dollar.
As a White House fact sheet on the order points out, cryptocurrencies have seen “explosive growth” over the past five years climbing from a $14 billion to $3 trillion market cap―although a massive sell-off has now erased about half of that. And last year, a Pew Research Center survey suggested that 16 percent of Americans (40 million) have touched cryptocurrency, with the largest group of users being men ages 18 to 29 (43 percent).
“The United States has an interest in ensuring that digital asset technologies and the digital payments ecosystem are developed, designed, and implemented in a responsible manner that includes privacy and security in their architecture, integrates features and controls that defend against illicit exploitation, and reduces negative climate impacts and environmental pollution, as may result from some cryptocurrency mining,” the order states.
Industry insiders appeared to welcome the executive order, which was expected to be essentially positive on cryptocurrencies based on previous reporting.
“The message I take from this EO is that the federal government sees cryptocurrency as a legitimate, serious, and important part of the economy and society, and I think it’s a good signal to serious people who’ve been holding back from getting involved,” Jerry Brito, director of D.C.-based think tank Coin Center, tweeted.
The growing use of a volatile asset class with various markets that are rife with fraudulent activity in some cases has already prompted federal scrutiny along the lines of this executive order, much of which has concluded that cryptocurrencies hold promise while also presenting some risk. In November, the Department of Treasury released a report on stablecoins―cryptocurrencies typically pegged to a stable storehouse of value like the U.S. dollar. In January, the Federal Reserve board released a discussion paper looking at the pros and cons of a U.S. central bank digital currency (CBDC).
“The Order lays out a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation,” reads a White House Fact Sheet on the executive order.
To that end, the order tasks numerous government agencies and departments to report back to the White House on a wide range of issues surrounding cryptocurrencies and a digital dollar. Importantly, the order clearly states that the Biden administration “places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.”
Within 180 days, “the Secretary of the Treasury, in consultation with the Secretary of State, the Attorney General, the Secretary of Commerce, the Secretary of Homeland Security, the Director of the Office of Management and Budget, the Director of National Intelligence” as well as any other department heads must file a report on the “future of money payment systems” that will essentially be a broad overview of crypto, its rise, and the implications for the U.S. The report will also include discussion of the implications of a CBDC, and the order encourages the Federal Reserve to continue researching the topic.
The Attorney General must also file a report on any new legislation that might be needed to implement a digital dollar. According to the order, numerous other departments are tasked with reporting back on how adopting digital currencies would affect U.S. government operations, including in “social-safety-net programs.”
According to the report, the government wants to know if a CBDC “could enhance or impede the ability of monetary policy to function effectively as a critical macroeconomic stabilization tool,” an important thing to note as the West aligns to financially punish Russia amid its invasion of Ukraine.
The order also covers consumer protections. Cryptocurrencies and digital assets are fundamentally speculative and volatile, with huge fluctuations that have wiped out individuals, scams that have pulled the rug out from under whole communities, and hacks and exploits aimed at stealing huge sums of crypto.
“We must protect consumers, investors, and businesses in the United States. The unique and varied features of digital assets can pose significant financial risks to consumers, investors, and businesses if appropriate protections are not in place,” reads the executive order. “In the absence of sufficient oversight and standards, firms providing digital asset services may provide inadequate protections for sensitive financial data, custodial and other arrangements relating to customer assets and funds, or disclosures of risks associated with investment.”
Within 180 days of this order, the Secretary of the Treasury, in consultation with the Secretary of Labor, as well as the heads of FTC, the SEC, the CFTC, Federal banking agencies, and other relevant departments, will submit a report on the conditions that would cause various digital currencies to rise in popularity and the potential risks to consumers.
The order covers a massive amount of ground, and also tasks agencies with looking into “economy-wide (i.e. systemic) financial risks posed by digital assets” and develop policies, as well as the possibility that cryptocurrency could be used to evade sanctions in jurisdictions outside the U.S.—however, currently, there is no evidence that Russia is using cryptocurrency to evade sanctions.
All in all, the order reflects a stance that the U.S. wants to be a place where cryptocurrencies are developed and used by people. It’s worth noting that a series of decisions by China to limit and ban aspects of the industry has led to a massive influx of firms to the U.S., particularly in Texas, and (mainly conservative) lawmakers such as Ted Cruz have been loudly speaking out in support of the cryptocurrency industry. China is also looking into developing its own CBDC, and the U.S. doesn’t seem keen to be left behind there, either.
“The United States derives significant economic and national security benefits from the central role that the United States dollar and United States financial institutions and markets play in the global financial system,” states the executive order. “Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.”
