As digital assets issued by the private sector reach a combined market capitalization of $3 trillion — an increase of more than 20,000% since November 2016 — it’s no wonder President Joe Biden’s administration has its focus on establishing the first coordinated federal digital asset strategy for the US.
Signed on March 9, the long-awaited Executive Order, “Ensuring Responsible Development of Digital Assets,” focused on two main objectives: strengthen oversight of existing digital asset activities to protect consumers/investors/businesses, mitigate systemic and illicit financial risks, and fostering financial inclusion; and potential options for designing and deploying a US central bank digital currency (CBDC).
A key priority is for the United States to take a leadership role in international engagement around digital asset governance, working with international authorities to “collectively promote strong standards and a level playing field.”
Through the “first-ever whole-of-government approach,” Mr. Biden now brings together a multitude of financial regulators to make policy recommendations, including potential regulatory and legislative action, across a broad spectrum and within tight timelines.
In a statement, Treasury Secretary Janet Yellen, whose team will be working on a report on the future of money and payment systems, among other things, said they will be guided by “consumer protection groups and investors, market participants and other leading experts”, allowing financial services players to give their opinion.
For many cryptophiles, the decree marks the coming of age of the digital asset market. In a statement, Lawrence Wintermeyer, executive co-chairman of Global Digital Finance, a member body for the crypto-asset and digital finance industry, said the order “affirms the legitimacy of the crypto-asset and digital finance industry. technologies in today’s global economy and society, and the important role this most innovative sector plays in continuing to meet many of the challenges we face today and in the future”.
Sandra Ro, GDF board member and CEO of the Global Blockchain Business Council, added that this is just the beginning. “Much more needs to be done to put in place balanced rules to create opportunities and jobs, to build bridges between regulatory frameworks and old-school laws, to intensify the dialogue between the public sector and the private sector to ensuring the prosperity of both and creatively reimagining how we keep financial systems safe and stable while building more resilient and sustainable systems,” she said.
However, Mr. Biden’s spotlight may also generate negatives for the booming sector which has not been as heavily regulated as the banking sector. According to several legal eagles, the principle of “same company, same risks, same rules” suggests that there could be increased regulatory and licensing requirements for cryptocurrency exchanges and issuers in the future.
Additionally, in light of the ongoing conflict between Russia and Ukraine, the Biden administration should examine whether digital assets are being used to circumvent US sanctions. The same week as the order, the Treasury Department’s Financial Crimes Enforcement Network issued an alert reminding financial institutions, including banks and money-services businesses, of their obligations to report suspected sanctions-busting activities.
In the banking sector, the executive order elicited a muted response. The Bank Policy Institute (BPI), a public policy, research and advocacy group, welcomed the potential greater clarity in the regulatory environment for banks and other financial institutions, and said it was “optimistic” that the ordinance would help foster responsible innovation.
However, he was less positive when it came to the potential U.S. CBDC, pointing to previous BPI research that concluded that CBDCs would “incur considerable and unavoidable costs to the financial system and economy while producing little or no tangible benefits”.
The American Bankers Association (ABA) has also raised concerns about the creation of a CBDC in the United States. “We urge the administration and the agencies involved to carefully consider the implications of a U.S. CBDC, which could fundamentally reshape our banking and payments system to the detriment of bank customers and their communities,” said Rob Nichols, president and CEO of the ABA, in a statement.
Joy Macknight is the editor of The banker. Follow her on Twitter @joymacknight
Sign up to receive the editor’s blog and in-depth coverage of the banking industry via the weekly e-newsletter.
