In a first-of-its-kind executive order issued on Wednesday, U.S. President Joe Biden directed federal agencies to coordinate their efforts in drafting cryptocurrency regulations. According to a fact sheet accompanying the order, the “whole-of-government” effort for regulating the crypto industry focuses on consumer protection, financial stability, illicit uses, leadership in the global financial sector, financial inclusion, and responsible innovation.
The executive order, the first of its kind, directs federal agencies to better communicate their work in the growing digital asset sector, but it does not specify which positions the administration wants agencies to take. Similarly, the order made no mention of any new regulations that cryptocurrency companies must follow.
A senior administration official took a neutral stance on digital assets, telling reporters that the growth of the cryptocurrency sector could jeopardize the United States’ financial system, national security, or business stability. Criminals can utilize cryptocurrencies for money laundering or avoiding sanctions if there isn’t enough oversight.
At the same time, the official added, digital assets can also offer opportunities for American innovation and competitiveness, as well as promote financial inclusion. Innovation is central to America’s story and economy, creating jobs and opportunities, establishing and expanding new industries, and maintaining their worldwide competitive edge and leadership.
According to a fact sheet shared with reporters, Wednesday’s executive order will define six “key priorities” for the administration: protecting U.S. interests, protecting global financial stability, preventing illicit uses, promoting “responsible innovation,” financial inclusion, and U.S. leadership.
According to the official, roughly 40 million Americans, or 16% of the total U.S. population, have invested in or are trading in cryptocurrencies.
Investor Security
An administration official cited cryptocurrency volatility as one issue that could harm investors, pointing out that bitcoin’s (BTC) price at the start of the COVID-19 pandemic was around $10,300. The price reached nearly $70,000 in November before falling again in the fall of 2021 and the beginning of 2022.
On Tuesday, the price of bitcoin increased by more than $3,000 (nearly 8%) after a Treasury Department statement on the executive order was published accidentally.
The official stated that the President has proposed a comprehensive whole-of-government approach to comprehend not only macroeconomic risks, but also microeconomic, with the risk to every individual, investor, and business that engages with these assets.
According to the official, investor protection is a primary goal. Understanding the technology that underpins digital assets will be a part of this effort. Another component will be understanding the current financial system’s flaws and the areas which do not currently serve all consumers.
The order acknowledges that their evaluation of the risks and possible benefits of digital assets must include an understanding of the way their financial system meets and does not meet the current requirements of consumers in an equitable, inclusive, and efficient manner, the official said.
Consumers may face an outdated payment infrastructure that might be slow or unusable. This was “especially true” of cross-border payments, according to the official.
Future of Money
According to a fact sheet, a portion of the order directs the US Treasury Department to outline a report on “the future of money and payment systems.”
The interagency report will examine the impact of cryptocurrencies on economic and financial growth, financial inclusion, national security, and “the extent to which technological innovation may influence that future.” The report should also address the earlier question of how the current financial system meets or fails to meet the needs of consumers.
Treasury Secretary Janet Yellen said in a statement published (and later removed) on Tuesday night that the report will supplement the Treasury Department’s existing efforts to analyze the cryptocurrency sector.
Already, the Department has collaborated with the President’s Working Group on Financial Markets, the FDIC (Federal Deposit Insurance Corporation), and the OCC (Office of the Comptroller of the Currency) to study and make recommendations on one specific type of digital asset – stablecoins, Yellen said. Under the executive order, Treasury and interagency partners will build on recently released National Risk Assessments, which spot key illegal financing risks associated with digital assets.
The President’s Working Group report, released in November, urged Congress to pass legislation clarifying federal bank regulators’ oversight authority over stablecoins, but it also stated that the Financial Stability Oversight Council (FSOC) could act in the absence of legislation.
In her statement, Yellen mentioned the FSOC’s role, stating that the financial stability watchdog would look into any possible risks posed by the cryptocurrency sector and evaluate whether appropriate safeguards exist already.
She explained that since the issues raised by digital assets frequently have important cross-border dimensions, they will work with their international partners for promoting robust standards and a level playing field.
Another senior administration official stated that the executive order will organize previous or ongoing efforts, reinforcing Treasury’s efforts with input from White House national security and economic advisers.
Digital dollar
The executive order will also direct agencies to assess the way the United States might issue a central bank digital currency should issuance be regarded in the national interest.
The order is related to the Federal Reserve’s ongoing research into digital dollar issuance. Multiple reports from central bank branches have been published in recent months assessing both the policy and technological queries that must be acknowledge
d before issuing a central bank digital currency (CBDC).
According to the administration official, more than 100 countries are already investigating CBDCs, with use cases encompassing both domestic and international transactions.
The official added that many of these countries are also collaborating to establish standards for CBDC design and cross-border systems. The executive order will help in ensuring that they have a leadership role and a seat at the table, with implications for domestic and international priorities, which includes the centrality of the US dollar in the worldwide financial system.
According to the official, when the United States held the Group of Seven presidencies, it established a digital payments experts group for assessing CBDCs, stablecoins, and other digital payments concerns.
Biden’s executive order will direct the Fed, as well as any other pertinent agencies or departments inside the federal government, to consider the potential risks of CBDCs in addition to the potential benefits.
Other factors that these agencies will have to contemplate in determining whether issuing a CBDC is in the national interest include implications for national security, human rights, and financial inclusion. The privacy of the dollar is still a major concern.
National security, global assistance
The executive order’s focus has long been rumored to be on national security. The order’s fact sheet mentions national security a few times, and an administration official says the administration has already started work on addressing these issues.
The United States Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) both have relatively new units dedicated to crimes committed with or utilizing cryptocurrencies.
The official stated that the greatest susceptibility of these ecosystems that criminals are currently utilizing is the inadequacy of global execution of anti-money laundering networks and frameworks with digital assets.
According to the official, part of this is since cryptocurrency networks were not depicted with tools such as screening identities or the ability to block transactions executed.
Indeed, most cryptocurrency networks may be designed for limiting identification and become more decentralized. For addressing this, the executive order “represents a continuation” of the United States’ efforts for setting financial and technological standards around the world, stated the official.
The official also stated that they remain dedicated to working with allies in the wider digital asset community for shaping the future of digital asset systems in a way that is inclusive, compatible with their democratic values, and protects the integrity of the worldwide financial system.
According to the fact sheet, this is aimed at advertising U.S. leadership in technology and economic competitiveness.
The fact sheet also stated that the US Commerce Department will be directed to develop a framework for addressing these concerns and ensuring that the US remains a leader in the utilization of digital asset technologies.
Other agencies should be able to use this framework for their crypto policy or operational approaches.
