President Joe Biden on Wednesday will officially sign an executive order directing agencies to study cryptocurrencies and a central bank digital currency (CBDC), and come up with a government-wide approach to regulating digital assets.
The long-awaited order lays out a national policy for digital assets across priorities, including, consumer and investor protection, financial stability, illicit finance, maintaining U.S. leadership in the global financial system and financial inclusion.
The move was originally expected last month, a source previously told Yahoo Finance, but the timetable was derailed by the ongoing Russia-Ukraine crisis. In early Wednesday dealings, Bitcoin (BTC-USD) and other digital coins were higher, tracking stocks in tenuous trading.
“We need to be clear-eyed that earlier forms of financial innovation have ended up hurting American families, while making a small group of people very rich, which underscores the need for robust consumer protection,” said a senior administration official.
The order will direct the U.S. Treasury to lead a report on a CBDC, in consultation with the Departments of Justice, State, Commerce, Homeland Security, Office of Management and Budget and Director of National Intelligence, to analyze whether a digital dollar is sound policy for the U.S. to pursue.
The administration is looking at CBDC pros and cons, as the U.S. looks to maintain the dollar’s central role in the international global financial system.
The White House supports the Federal Reserve’s efforts to explore a CBDC. In January the Fed issued a white paper exploring the pros and cons of issuing a digital dollar, while the Boston Fed is studying the mechanics of designing one best suited for use in the U.S. economy, should officials pursue one.
The DOJ is also tasked with determining whether a new law is needed to issue a CBDC, something China has already done with its digital yuan. Fed Chair Jay Powell has said Congress would need to authorize the central bank to issue a similar token.
“China might have been the first large, industrialized nation to launch a CBDC with the digital yuan, but it will not be the last. Far from it,” noted deVere Group’s Nigel Green.
“Indeed, the U.S. now appears to be playing ‘catch up,’” he said, calling digital currencies “are an inevitability in the ever more digital world that we live in.”
Laying the foundation
Meanwhile, the Office of Science Technology Policy will do an analysis of the technical aspects of a CBDC, and work with the Environmental Protection Agency on analysis of the environmental impact of digital assets.
The order also directs Treasury Secretary Janet Yellen, along with other agencies, to produce a report on the future of money and payment systems, and include the potential impact on economic and financial growth, inclusion and national security.
Treasury is also tasked with leading a report in consultation with federal banking regulators – along with the FTC, SEC and CFTC – on what measures to take to protect consumers, investors and businesses. Recently, a wave of fraud, theft, and cyberattacks of crypto assets have left investors holding the bag.
The Financial Stability Oversight Council (FSOC), created after the 2008 financial crisis to monitor risks to the system, will be asked to study what systemic risks digital assets pose to the financial system, with a focus on runs and what can be done to prevent them. The President’s Working Group on Financial Markets has already tasked the FSOC with looking into systemic risks of stablecoins.
The government will also work on coordinating crypto regulations internationally to prevent gaps in regulatory supervision, ensure compliance across jurisdictions, and guard against arbitrage in crypto cross border.
Senior administration officials say the insufficiency of international implementation of anti-money laundering networks and frameworks is the greatest vulnerability of the crypto ecosystem, which criminals are exploiting.
While there are suspicions crypto could be used to evade sanctions on Russia, the White House insists crypto is not a viable workaround for those penalties. The administration is continuing to take action started before Russia’s invasion, including under law enforcement and existing Treasury authority, as part of the U.S. anti-ransomware strategy that’s been underway for several months.
The EO also seeks to push innovation and promote U.S. economic competitiveness and leadership in the global financial system by directing Commerce to work across the government to create a crypto competitiveness framework.
Cryptocurrencies have exploded in growth, topping $3 trillion in market cap last November, up from $14 billion just five years prior, but recent volatility in the sector has shaved that figure to under $2 trillion. Surveys suggest that around 16% of American adults – approximately 40 million people – have invested in, traded, or used cryptocurrencies.
Studies will last 90-180 days on average. After the studies are complete, the Treasury will collect the information and then make recommendations on what to do next.
While the president’s order won’t make actual policy yet, it’s a step towards offering clarity for the crypto industry, which is starving for rules of the road and is disrupting the banking industry and global payment system.
The president’s executive order comes after the President’s Working Group on Financial Markets – composed of all major financial regulatory agencies – tasked Congress with coming up with a new regulatory framework to oversee stablecoins while recommending that only banks should be allowed to issue stablecoins. Stablecoins, a variety of cryptocurrencies, are tied in value to a fiat currency like the U.S. dollar or Euro to counter volatility.
At the same time, the Securities and Exchange Commission and Commodities Futures Trading Commission are looking at how to regulate crypto and whether the digital tokens should be classified as securities or commodities, though no formal rules have been proposed.
Members of Congress are slowly putting forth or soon expected to put forth legislation to regulate cryptocurrencies, though none yet appears to have a chance of being signed into law this year.
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