President Biden signed an executive order on March 9, 2022, titled “Ensuring Responsible Development of Digital Assets.” The document details the U.S. government’s strategy regarding digital assets, including cryptocurrencies, central bank digital currencies (CBDCs), stablecoins and other types of exchange that are recorded on the blockchain.
What does the executive order discuss more specifically?
Essentially, this executive order is a general policy statement. It now requires input from multiple federal agencies who have up to a year to comment. While the executive order is not a specific proposal for regulatory purposes, this EO in particular highlights three main areas:
- Enforcing U.S leadership in digital assets. As it currently stands, many countries around the globe have adopted their own views regarding cryptocurrency. Some parts of the world have totally embraced crypto while others have completely banned crypto altogether. Approximately 40 countries have restrictions in place in an effort to dictate whether or not banks can deal with crypto in their respective areas. Biden’s EO shows that the United States endorses cryptocurrency. Additionally, the executive order makes note of the fact that the U.S. is seeking to reinforce its leadership in “the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets.” A major report within this EO revolves around the direction that agencies will move in when it comes to initiating research around the merits of a Central Bank Digital Currency (CBDC). This includes agency participation in international efforts and projects as well as both a strategic Federal Reserve plan for potential implementation and a proposal for dollar CBDC legislation.
- Identifying potential risks. There are numerous potential risks when dealing with digital assets. The most notable risks identified within the EO include cybersecurity, data protection, privacy, risk disclosures and systemic risks that “should, as appropriate, be subject to and in compliance with regulatory and supervisory standards that govern traditional market infrastructures and financial firms.” Furthermore, sanctions evasion, climate and pollution are other factors addressed within the EO as well.
- Designing systems that mitigates the risks as the U.S. moves forward. Biden’s executive order establishes an intentional step-by-step process that should be followed when examining the opportunities and risks. This process is made up of a series of reports, frameworks, and action plans. More specifically, the agencies that are required to comment should address the importance of being able to (1) identify and examine the opportunities and risks associated with digital assets, and (2) propose action plans, regulations, and legislation with the goal of enhancing benefits while mitigating and obliterating possible risks.
Biden’s March 9th executive order identified six main policy areas for said reports:
- Consumer, Investor and Business Protection.
- Mitigation of Illicit Finance and National Security Risks Posed by Misuse of Digital Assets.
- Promotion of Access to Safe and Affordable Financial Services.
- Protection of U.S. and Global Financial Stability and Mitigation of Systemic Risks.
- Promotion of U.S. Leadership in Global Financial System and Technological and Economic Competitiveness.
- Support of Technological Advances Promoting Responsible Development and Use of Digital Assets.
Up until this stage, cryptocurrency has barely been regulated. Some crypto investors worry that regulation will hurt the industry and any related innovation. On the other hand, many welcome the anticipated guidelines. The industry is still in its infant stage, growing with unprecedented speed, which creates volatility, speculation and uncertainty. The first set of regulations will focus on setting up the basic rules, which will protect investors and consumers from fraudulent activities, and help them make informed decisions. If done correctly, the new policies and laws might help reduce excessive price volatility and create market stability. The main takeaway is that the EO acknowledges the importance of the cryptocurrency markets and the significant and growing role they will play in America’s future financial landscape.