Since President Joe Biden signed an executive order in March on Ensuring Responsible Development of Digital Assets, government agencies have been at work developing a framework and policy recommendations that advance the priorities identified in the order.
This week, some details of that work have emerged, as nine agency reports have been submitted to date. The reports call on the various federal government agencies to promote innovation through private-sector research and development while citing the importance of mitigating the downside risks via increased enforcement of existing laws and the creation of efficiency standards for cryptocurrency mining. Further, the reports encourage the Federal Reserve to continue its ongoing research on a possible U.S. Central Bank Digital Currency (CBDC). They also called for the creation of a Treasury-led interagency working group to support the Federal Reserve’s efforts.
The Biden administration plans to take several actions, as recommended by the reports. The various actions fall within the six key priorities of the initiative, as outlined by the executive order. The six key principles are: consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
To protect consumers, investors and businesses, the administration will encourage regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to pursue investigations and enforcement actions against unlawful practices in the digital assets space. It will also encourage agencies to issue guidance and rules to address current and emergent risks in the digital asset ecosystem.
To promote access to safe, affordable financial services, agencies will encourage the adoption of instant payment systems, like FedNow, by supporting the development of technologies by payment providers to increase access to instant payments. The president will also consider agency recommendations to create a federal framework to regulate nonbank payment providers.
To foster financial stability, the Treasury will work with financial institutions to bolster their capacity to identify and mitigate cyber vulnerabilities by sharing information and promoting a wide range of data sets and analytical tools.
To advance responsible innovation, the Office of Science and Technology Policy (OSTP) and NSF will develop a Digital Assets Research and Development Agenda to kickstart fundamental research on topics such as next-generation cryptography, transaction programmability, cybersecurity and privacy protections, and ways to mitigate the environmental impacts of digital assets.
To reinforce the country’s global financial leadership and competitiveness, agencies will leverage positions in international organizations to message U.S. values related to digital assets.
To fight illicit finance, the president will evaluate whether to call upon Congress to amend the Bank Secrecy Act (BSA), anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and nonfungible token (NFT) platforms.
And finally, with regard to exploring a CBDC, the administration has developed policy objectives for a CBDC system, which flesh out the goals outlined for a CBDC in the executive order. And, as mentioned, it encourages the Federal Reserve to continue its ongoing CBDC research, experimentation, and evaluation. To support these efforts, the Treasury will lead an interagency working group to consider the potential implications of a CBDC.
“Today’s reports highlight the risks that cryptocurrencies could pose to our economy if not regulated carefully and comprehensively, the opportunities a central bank digital currency could create, and the challenges we face in strengthening our financial resilience and national security,” U.S. Sen. Sherrod Brown (D-OH), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, said. “Congress and financial regulators need to come together to craft crypto policies that protect investors, consumers, and market stability.”
U.S. Senate Banking Committee Ranking Member Sen. Pat Toomey (R-PA) had a mixed view on it, calling for additional action.
“While I appreciate the Biden administration’s engagement on digital assets, true regulatory clarity will require much more than just reports. Our current laws – written decades ag – cannot adequately address these new technologies, which have several fundamentally different features than traditional securities, commodities, and other existing financial products. What’s clearly needed is a comprehensive, tailored framework that allows these new technologies to thrive with appropriate guardrails for consumers,” Toomey said. “We should start by enacting legislation for payment stablecoins. I’ve released a proposal to do just that, and I hope the administration will work with Congress to get this done by the end of the year.”