The White House has issued an executive order setting out a national policy for digital assets across six priorities, as well as calling for ‘urgency’ on exploration of the case for a digital dollar.
President Joe Biden signed the order on ‘ensuring responsible innovation in digital assets’ – described as the US’s first ‘whole-of-government strategy to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology’ – on 9 March.
The six priorities are: consumer and investor protection; financial stability; illicit finance; US leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
The long-awaited move comes as surveys suggest that around 16 per cent of adult Americans – approximately 40 million people – have invested in, traded or used cryptocurrencies, according to the White House. In terms of central bank digital currencies (CBDCs) the US is lagging nations including China, whose trials of a digital yuan are well progressed.
Digital assets’ growth ‘creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security and climate risk’, the executive order states. The president’s office goes on to state that the US ‘must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system and the climate’; and that the country ‘must play a leading role in international engagement and global governance of digital assets consistent with democratic values and US global competitiveness’.
‘Unprecedented focus of co-ordinated action’
The order directs certain departments or government entities to take the lead in some areas. For example, it calls for measures to protect consumers, investors and businesses by directing the Department of the Treasury and other government agency partners to ‘assess and develop’ policy recommendations to address the implications of the digital asset sector and changes in financial markets for consumers, investors, businesses and equitable economic growth. It also encourages regulators to ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.
In terms of systemic risks explicitly, the White House encourages the Financial Stability Oversight Council, established in the wake of the global financial crisis 15 years ago, to identify and mitigate systemic financial risks posed by digital assets and to develop appropriate policy recommendations to address any regulatory gaps. In addition, it calls for an ‘unprecedented focus of co-ordinated action’ across relevant US government agencies to mitigate national security risks posed by the illicit use of digital assets.
The Justice Department announced just last month that it had seized more than $3.6 billion-worth (about £2.69bn) of digital currency – its biggest financial seizure ever – stolen during a 2016 hack of a crypto-currency exchange called Bitfinex and arrested two suspects for an alleged conspiracy to launder the proceeds.
The executive order directs the Department of Commerce to lead a cross-government drive to establish a framework ‘to drive US competitiveness and leadership in, and leveraging of, digital asset technologies’. It also takes in financial inclusion, stating that Treasury secretary Janet Yellen, working with ‘all relevant agencies’, will produce a report on the future of money and payment systems; and calls on the government to study ways to make crypto more ‘responsible’, reducing ‘any negative climate impacts’.
Jurisdictions worldwide are striving to bring in rules in the same space. For example, the European Parliament’s economic and monetary affairs committee is due to vote on 14 March on the European Union (EU)’s relatively high profile ‘MiCA’ (Markets in Crypto Assets) rules (regulation was proposed by the European Commission in September 2020). The EU also moved this week to clarify that crypto assets are included in sanctions against Russia and Belarus.
‘Broader government action’ on CBDC
In respect of the possibility of a US central bank digital currency (CBDC) the executive order calls for urgency to be ceded to research and development of a potential digital dollar ‘should issuance be deemed in the national interest’. It directs the government to assess the ‘technological infrastructure and capacity needs’ for a potential digital dollar ‘in a manner that protects Americans’ interests’.
The Federal Reserve asked 22 questions in a CBDC paper put out for consultation in January. Its 40-page ‘Money and Payments: the US Dollar in the Age of Digital Transformation’ paper was described as the ‘first step in a discussion of whether and how a CBDC could improve the safe and efficient domestic payments system’ and does not favour any policy outcome. The consultation, which has a 20 May deadline for responses, makes clear that the Fed does not intend to issue a CBDC without the backing of the executive branch and Congress, ‘ideally in the form of a specific authorising law’.
The executive order encourages the Fed to continue its research, development and assessment efforts for a US CBDC, ‘including development of a plan for broader US government action in support of their work’.
It also states that this effort ‘prioritises US participation in multi-country experimentation’ and ‘ensures US leadership internationally to promote CBDC development that is consistent with US priorities and democratic values’.
Reactions to the executive order
Brian Deese, director of the National Economic Council – which is part of the Executive Office of the President – and national security adviser Jake Sullivan described the executive order as ‘marking an intensification of our efforts to promote responsible innovation in the digital assets space’
In a joint-statement, Deese and Sullivan described themselves as ‘clear-eyed that “financial innovation” of the past has too often not benefited working families, while exacerbating inequality and increasing systemic financial risk’. This ‘underscores the need to build robust consumer and economic protections into digital asset development.’
Global Digital Finance (GDF), an industry membership body, welcomed the executive order. Lawrence Wintermeyer, GDF’s executive co-chair, described the order as “affirm[ing] the legitimacy the crypto and digital asset sector plays in the global economy and society, and the important role this most innovative sector plays to continue to meet many of the challenges we face both now and into the future.” He said the GDF ‘community’ “look[ed] forward to engaging with the agencies tasked by this order as well as leaders in Congress to advance a balanced and thoughtful regulatory framework.”
GDF board member Sandra Ro, who is chief executive of industry association the Global Blockchain Business Council, spoke of a “watershed moment” for US crypto and blockchain. “This did not happen overnight,” she said. “After nearly a decade of ‘building, evolving and scaling’ this ground-breaking technology has received official recognition from POTUS [president of the US].”
‘US DoJ appoints digital assets prosecutor to head crypto crimes team’ – our news story (28 February) on the appointment of Eun Young Choi as inaugural director of the Department of Justice’s newly created National Cryptocurrency Enforcement Team (NCET) to spearhead an intensification of efforts to tackle digital asset crimes
‘Boston Fed and MIT release digital currency tech research’ – our news story (15 February 2022) on the Federal Reserve Bank of Boston and Massachusetts Institute of Technology’s (MIT) Digital Currency Initiative (DCI) publishing initial findings of multi-stage research into CBDC technology – including details on the successful test of digital currency architecture capable of handling 1.7 million transactions per second
‘Federal Reserve CBDC consultation paper asks 22 questions’ – our news story (21 January 2022) on the release of the 40-page ‘Money and Payments: the US Dollar in the Age of Digital Transformation’ document