WASHINGTON — President Biden signed an executive order on Wednesday ordering the federal government to come up with a plan to regulate cryptocurrencies, acknowledging their popularity and potential to destabilize traditional finances.
The order, which has been in development for months, will coordinate efforts by financial regulators to better understand the risks and opportunities of digital assets, particularly in the areas of consumer protection, national security and illicit financing.
The move comes in response to the “explosive growth” of digital assets, the increasing number of countries exploring central bank digital currencies, and the desire to maintain US technology leadership, according to the Biden administration. It directs financial regulators to continue the work that began in earnest last year, including studying and reporting on the creation of a digital dollar.
The results could help outline a rapidly innovating industry that has quickly become mainstream, but which critics say is enabling illegal activities, including money laundering, and posing significant financial risks to consumers and the financial system.
Brian Deese, the director of the National Economic Council, and Jake Sullivan, the president’s national security adviser, said in a statement that the order “will help the U.S. continue to play a leading role in the innovation and governance of the global ecosystem.” digital assets at home and abroad, in a way that protects consumers, is consistent with our democratic values, and promotes US global competitiveness.”
The directive calls on the government to assess the potential to develop a central bank digital currency – essentially a digital dollar – that would be used to modernize payment systems.
Central banks from the Bahamas to Sweden to China are experimenting with digital currency offerings, raising concerns among lawmakers that the Federal Reserve may be falling behind the competition.
In January, the Fed released a much-anticipated report on central bank digital currencies, which it said was intended to spark debate. On Wednesday, after the news of the executive order, the Fed’s Official Twitter Account Listed that it had “made no decisions on whether or not to pursue or implement a central bank digital currency” and invited the public to continue commenting on issues raised in the report.
Some, including Fed Chair Jerome H. Powell, have argued that a U.S. digital dollar could remove the need for privately issued stablecoins — digital currencies that promise to maintain their value by relying on stable financial support such as bank reserves and short-term debt. . Private issuers oppose that claim, arguing that they could coexist with a central digital currency should one be developed.
Government officials, who detailed the digital currency portion of the order to reporters on Wednesday, said the Fed’s earlier report provided a strong foundation but did not attempt to solve some of the trickier issues surrounding a digital dollar, including the design and its issuance.
Treasury Department officials will now begin a much more extensive investigation into the concept of the digital dollar and the problems that can arise from it.
Eswar Prasad, a trade policy professor at Cornell University and the author of a book called “The Future of Money,” said the order would put the United States in “pole position” to set global standards and be closer to what he said. to come. “the inevitable digitization of the world’s preeminent currencies.”
Experts on cryptocurrencies have long called on the government to streamline what was a distracted regulatory approach.
“We need clear answers about how we should do things,” said Louis Lehot, a cryptocurrency expert at the law firm of Foley & Lardner. “We operate in a gray zone and in a sandbox.”
He added: “For years we have seen a complete lack of any strategic direction or thought from the federal government.”
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The order comes at a time of heightened national security concerns, including whether Russia will use cryptocurrency to circumvent the punitive sanctions the United States has imposed on President Vladimir V. Putin’s regime as a result of his invasion of Ukraine. . A senior Biden administration official who detailed the contents of the executive order but was not authorized to speak about it publicly told reporters Tuesday night that the work preceded the war in Ukraine.
Cryptocurrency would not be a viable way for Russia to circumvent sanctions, the official said, but the geopolitical situation exacerbates long-standing concerns about the role of anonymity in cryptocurrency and the risk of illegal activities arising from it. The blockchain technology underlying cryptocurrencies gives anyone who can read computer code the ability to track transactions, ostensibly eliminating the need for trust between transaction parties and enabling anonymity.
Names and personal identifiers are not always required to participate in the crypto economy: code runs the show on many decentralized platforms, programs and apps. The sector’s offerings are attracting more and more money for projects that defy traditional business definitions, and increasing amounts of digital assets are managed by major players – including venture capitalists and developers – operating without sharing their names.
Regulators have yet to write a lot of rules around the new technology, but Mr Biden’s executive order could change that.
Anticipation of a regulatory crackdown, along with rules requiring tougher scrutiny of digital transactions tucked into Mr Biden’s $1 trillion infrastructure bill, has prompted the cryptocurrency industry to bolster its lobbying presence in Washington .
Some groups promoting digital assets welcomed the order. “The fact that the US president has something to say about crypto makes sense,” said Kristin Smith, the executive director of the Blockchain Association, an industry trade group.
Pennsylvania Republican and cryptocurrency champion Senator Patrick J. Toomey took unusual credit at the White House for highlighting the potential benefits of cryptocurrencies, including stablecoins. But he warned that too broad a range of regulations could hinder growth in an area where innovation was led by consumers.
“This technology empowers individuals and they deserve to have a say in drafting thoughtful legislation,” Mr Toomey said in a statement. “The government must resist the urge to stretch existing laws in an effort to expand its regulatory powers.”
David Yaffe-Bellany reporting contributed.
