Last year, the White House said that it was considering a wide range of new oversights and regulations for the cryptocurrency market to deal with the growing threat of ransomware and other cybercrimes.
Following up on these statements, President Joe Biden has signed an executive order directing federal agencies, including DOJ and Treasury to study the legal and economic ramifications of creating a U.S.-backed central bank digital currency (CBDC). This comes less than two months after the Federal Reserve Bank published a white paper beginning the conversation with relevant stakeholders on the matter of developing a CBDC. This is the White House’s first major step toward regulating, and possibly developing, digital currency.
“The rise in digital assets 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 White House stated. “The United States 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, it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness.”
The order outlined “the first ever, whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.” It calls for measures to:
- Protect U.S. consumers, investors, and businesses by directing Treasury and other agencies to assess and develop policy recommendations to address the effects of the digital asset sector and changes in financial markets.
- Protect U.S. and global financial stability and mitigate systemic risk by ordering the Financial Stability Oversight Council to identify and mitigate “economy-wide financial risks.
- Mitigate the illicit finance and national security risks posed by illicit use of digital assets by directing DOJ and all relevant agencies to coordinate action with external allies and partners to ensure responsiveness to risks.
- Promote U.S. leadership in technology and economic competitiveness to reinforce US leadership in the global financial system by ordering the Department of Commerce to establish a framework to drive US competitiveness and leadership in digital assets and related technologies.
- Promote equitable access to safe and affordable financial services by ordering Treasury and all relevant agencies to produce a report on the future of money and payment systems which will include an examination of the extent to which technology may influence the future of financial services and access to such services.
- Support technological advances and ensure responsible development and use of digital assets by directing the entire U.S. government to take steps to study and support technological advances relating to digital assets while prioritizing privacy, security, combating illicit exploitation, and reducing negative climate impacts.
- Explore a U.S. central bank digital currency (CBDC) by directing the U.S. government to assess the technological infrastructure and capacity needs for a potential U.S. CBDC.
These steps do not necessarily signify plans for the federal government to adopt a CBDC, as the Fed has clarified in their report; but may denote a future of heightened oversight and regulation for fintech industries that have seen rapid growth in recent years.
Treasury Secretary Janet Yellen warned of an “explosion of risk” from new financial technologies and digital markets, including the misuse of digital currency; but also said that new financial technologies could help fight crime and reduce inequality.
“The administration will continue work across agencies and with Congress to establish policies that guard against risks and guide responsible innovation, with our allies and partners to develop aligned international capabilities that respond to national security risks, and with the private sector to study and support technological advances in digital assets,” the White House said.
“One thing that today’s action makes clear—Congress must legislate,” said Representative Patrick McHenry, ranking member of the House Committee on Financial Services. “We need bipartisan solutions developed through a thoughtful and transparent process that includes market participants—not anti-innovation policies. Members of the House Financial Services Committee on both sides of the aisle are already examining the issues and opportunities raised by digital assets. President Biden must work with us.”
Later this month, the House Committee on Financial Services is scheduled to hold a hearing on the risk and benefits of a CBDC. The full committee hearing will take place on March 29, 2022, at 10:00AM ET.