Saying the “rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier,” President Joe Biden said he would sign an executive order Wednesday (March 9) aimed at establishing a single, government-wide policy on cryptocurrencies and other digital assets.
Noting that 16% of the population — 40 million Americans — use or have used cryptocurrencies, a fact sheet released by the White House this morning offering details of the order, which is focused heavily on the need for the U.S. to maintain its leadership in the space.
Bitcoin jumped 8% after the announcement, highlighting the widespread belief that a single, government-wide policy initiative for the crypto industry will be good news for crypto investors.
The executive order will have six areas of focus, the White House said: consumer and investor protection; protecting financial stability; preventing illicit finance; advancing U.S. leadership in the global financial system and economic competitiveness; promoting financial inclusion; and encouraging responsible innovation.
It’s worth noting that even before enumerating those six priorities, the executive order made “placing urgency” on the research and development necessary to create a central bank digital currency (CBDC) a high priority. While making clear the decision to create a digital dollar has not yet been made, the issue was the first priority mentioned.
A Watershed Moment
Calling the news of the executive order “a watershed moment for crypto, digital assets, and Web 3,” Jeremy Allaire, CEO of USD Coin stablecoin issuer Tether and a leading industry voice, said on Twitter that the “U.S. seems to be taking on the reality that digital assets represent one of the most significant technologies and infrastructures for the 21st century.”
Crucially, he said, the executive order “calls for nearly every relevant federal agency to take on understanding and developing policy positions that understand and address risks, but vitally, that support innovation and U.S. national economic competitiveness.”
It is, he added, a moment in the development of crypto that is “akin to the 1996/1997 whole-of-government wakeup to the commercial internet.”
Advancing Innovation
The executive order also emphasizes the need to support innovation in the rapidly growing space while also mitigating the risks crypto poses to consumers, businesses and the broader financial system.
Biden’s order will establish what the release called a “whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.”
This focus became apparent Tuesday (March 8), when the Treasury Department accidently posted Treasury Secretary Janet Yellen’s response to the executive order announcement a day early.
Read more: Yellen Says Biden’s Crypto Executive Order Strikes Innovation-Risk Balance
Saying the department would oversee an interagency task force to produce “a report on the future of money and payment systems,” Yellen promised “a coordinated and comprehensive approach to digital asset policy” that will “support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses.”
It will also look at “risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy,” Yellen said.
Political Maneuvering
Striking the right balance between innovation and risk has been a growing part of the political debate over regulating cryptocurrencies as the issue climbed higher up the national agenda over the past six months, most notably when 99 U.S. senators used a rare tactic to try to amend the trillion-dollar infrastructure bill in August to correct a provision that the crypto community said might threaten the industry — a very large reaction to what was, given the scope of the bill, a very minor provision.
See more: Crypto’s Influence Shows as Treasury Promises Protection for Miners, Stakers
To an extent, this has been breaking down along partisan lines, with a number of Democrats like Sen. Elizabeth Warren of Massachusetts focused on the dangers cryptocurrency trading poses to average investors, while Republicans like Sen. Cynthia Lummis of Wyoming and Rep. Patrick McHenry of North Carolina, the ranking minority member of the House Financial Services Committee, have focused on ensuring regulations do not stifle innovations.
That can be taken too far, however, as plenty of Democrats are also focused on protecting the industry’s capacity to innovate, notably Senate Finance Committee Chairman Sen. Ron Wyden of Oregon, who warned regulators Monday to stay “on the side of the innovator.”
Read more: US Senate Finance Committee Chair Urges Caution on Crypto Rules
Protecting Consumers and Investors
The first priority enumerated by the executive order directs the Treasury Department to oversee a coordinated interagency effort tasked with protecting U.S. consumers, investors and businesses.
It will make “policy recommendations to address the implications of the growing digital asset sector” and the resulting changes in financial markets, notably including the need to promote “equitable economic growth.”
It directs regulators to “ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.”
Protecting Financial Stability
Most notably, this means protecting financial stability in the U.S. and globally, ordering the Financial Stability Oversight Council to identify and make policy recommendations to mitigate any systemic risks posed by digital assets.
See also: Facebook Diem Says Move Fast, Break Things, Then Crash Into a Wall
Without specifically mentioning stablecoins, this clearly addresses concerns that a private-sector initiative like Facebook owner Meta’s Libra/Diem stablecoin could destabilize the global financial system by creating a global currency that would rob governments of the monetary tools they typically use to prevent financial crises.
Read also: FSB Tells National Regulators to Move Faster on Stablecoin Regulation
Protecting Against Money Laundering
Specifically, the report reefers to “illicit finance and national security risks” posed by the abuse of digital assets. That means the ability of the pseudonymity of cryptocurrencies — and especially so-called privacy coins — to facilitate tax evasion, money laundering by drug dealers and other criminals, and sanction-busting by regimes such as Iran, North Korea and most recently Russia.
See also: When Privacy Counts, Crypto Users Turn to Mixing Services
It calls for “an unprecedented focus of coordinated action across all relevant U.S. government agencies,” and it directs them to work with allies to create an international framework to address these risks, as well as coordinated action to enforce it.
Read also: From the US and EU to Russia, Crypto Money Laundering Is Under Attack
Protecting US Financial Leadership
This means protecting U.S. leadership in the global financial system — specifically the dollar’s place as the world’s reserve currency — as well as in the development of digital asset technology.
The Commerce Department is tasked with leadership in this regard, ordered to protect economic competitiveness by establishing a framework that “will serve as a foundation for agencies and integrate this as a priority into their policy, research and development, and operational approaches to digital assets.”
Promoting Access to Financial Services
Cryptocurrencies have been widely touted as a way to improve access to financial services for the poor and unbanked in both the U.S. and globally — remittances being the low-hanging fruit.
Saying that providing “safe, affordable and accessible financial services” is in the U.S.’s national interest, the order directs the Treasury Department to lead an interagency effort to produce a report “on the future of money and payment systems” that includes “implications for economic growth, financial growth and inclusion [and] national security.”
See also: Financial Inclusion and Crypto Will Drive Technology in a Digital-First World
The order also has the rather broad requirement that the report looks at “the extent to which technological innovation may influence that future.”
Supporting Responsible Use of Digital Assets
The executive order calls on government agencies “to take concrete steps to study and support technological advances in the responsible development, design and implementation of digital asset systems.”
This should prioritize privacy and security while also preventing the use of cryptocurrencies in “illicit exploitation” — likely referring to human trafficking and the like.
Read also: Will FBI’s New Crypto Crime Unit Bust Industry’s Mainstream Image?
It also orders a focus on reducing the climate impact of cryptocurrencies, meaning the enormous amounts of power used and pollution caused by bitcoin and Ethereum miners.
Exploring a CBDC
The order instructs agencies to step up the investigation of a digital dollar, calling the determination of whether the U.S. needs a CBDC urgent and directing them to “assess the technological infrastructure and capacity” necessary to create one.
See more: As Digital Yuan Struggles, Does America Really Need a Digital Dollar?
The Federal Reserve is tasked with overseeing this by continuing “its research, development and assessment efforts for a U.S. CBDC,” including coordinating the work of other agencies in this effort.
The goal “prioritizes U.S. participation in multi-country experimentation and ensures U.S. leadership internationally to promote CBDC development,” as well as ensures it meets the “priorities and democratic values” of the U.S.
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