Biden takes a step toward cryptocurrency regulation

WASHINGTON — President Biden on Wednesday signed an executive order directing the federal government to propose a plan to regulate cryptocurrencies, acknowledging their popularity and potential to destabilize traditional finance.

The order, which has been in the works for months, will coordinate the efforts of financial regulators to better understand the risks and opportunities presented by digital assets, particularly in the areas of consumer protection, national security and illicit finance.

The move, according to the Biden administration, is a response to the “explosive growth” of digital assets, the growing number of countries exploring central bank digital currencies, and the desire to maintain U.S. technology leadership. 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 findings could help shape the contours of an industry that is rapidly innovating and has spread rapidly, but which critics say enables illicit activities, including money laundering, and creates outsized financial risks for consumers and the financial system.

Brian Deese, director of the National Economic Council, and Jake Sullivan, national security adviser to the president, said in a statement that the order “will help position the United States to continue to play a leading role in the innovation and governance of the digital asset ecosystem”. at home and abroad, in a way that protects consumers, is consistent with our democratic values, and advances America’s global competitiveness.

The directive calls on the government to assess the potential for the development of a central bank digital currency – essentially a digital dollar – which would be used to modernize payment systems.

Central banks from the Bahamas to Sweden to China are experimenting with digital currency offerings, fueling concerns among lawmakers that the Federal Reserve could fall behind the competition.

In January, the Fed released a long-awaited report on central bank digital currencies, which it said was intended to spark debate. On Wednesday, after the announcement of the executive order, the The official Fed Twitter account rated that he had “made no decision on whether to pursue or implement a central bank digital currency” and invited the public to continue commenting on issues raised by his report.

Some, including Fed Chairman Jerome H. Powell, have argued that a U.S. digital dollar could eliminate 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 resist this claim and have argued that they can co-exist with a central digital currency, should it be developed.

Administration officials, who detailed the digital currency portion of the order for reporters on Wednesday, said the Fed’s earlier report provided a solid foundation but did not attempt to address some of the most serious issues. delicate surrounding a digital dollar, including its design and issuance.

Treasury Department officials will now embark on a much deeper examination of the concept of the digital dollar and the problems that could arise from it.

Eswar Prasad, a trade policy professor at Cornell University and 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 move closer of what he said was “the inevitable digitization of the world’s preeminent currency.”

Cryptocurrency experts have long called on the government to streamline what was a scattered regulatory approach.

“We need clear answers on how to do things,” said Louis Lehot, cryptocurrency expert at law firm Foley & Lardner. “We operate in a gray area and in a sandbox.”

He added: “We have seen a complete lack of strategic direction or thinking from the federal government for years.”

The order comes at a time of heightened national security concerns, including whether Russia will use cryptocurrency to evade punitive sanctions the United States imposed on President Vladimir V. Putin’s regime following 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 work on it predated the war in Ukraine.

Cryptocurrency would not be a viable way for Russia to circumvent sanctions, official said, but geopolitical situation exacerbates long-standing concerns about role of anonymity in cryptocurrency and risk of resulting illicit activity. The blockchain technology underlying cryptocurrencies gives anyone who can read computer code the ability to track transactions, seemingly eliminating the need for trust between transaction parties and allowing for anonymity.

Names and personal identifying information are not always necessary to participate in the crypto-economy: on many decentralized platforms, programs and applications, code rules. Industry offerings are attracting more and more money to projects that challenge traditional business definitions, and growing amounts of digital assets are managed by major players – including venture capitalists and developers – who operate without sharing their names.

Regulators still have to write many rules about 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 that have been slipped into Mr. Biden’s $1 trillion infrastructure bill, have prompted the cryptocurrency to strengthen 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 is significant,” said Kristin Smith, executive director of the Blockchain Association, an industry trade group.

Senator Patrick J. Toomey, Republican of Pennsylvania and cryptocurrency champion, delivered unusual praise from the White House for highlighting the potential benefits of cryptocurrencies, including stablecoins. But he warned that overreaching regulation could stifle growth in an area where innovation has been consumer-led.

“This technology empowers individuals, and they deserve to have a say in shaping thoughtful legislation,” Toomey said in a statement. “The administration should resist the urge to expand existing laws in an effort to expand its regulatory authority.”

David Yaffe-Bellany contributed report.

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