In its quest to regulate transactions involving digital assets and bolster federal oversight, the Biden administration has laid the foundation for how it plans to rein in the Wild West of crypto trading.
Following a March executive order directing federal agencies to assess the benefits and potential risks of integrating digital assets into the mainstream, Biden’s first-of-its-kind digital asset agenda is comprised of nine reports announced September 16 on the White House website.
“The reports call on agencies to promote innovation by kickstarting private-sector research and development and helping cutting-edge U.S. firms find footholds in global markets,” read the release. “At the same time, they call for measures to mitigate the downside risks, like increased enforcement of existing laws and the creation of commonsense efficiency standards for cryptocurrency mining.”
Critical to the agencies’ work over the past six months has been to consider the research and development of a U.S. central bank digital currency (CBDC), or a digital form of the U.S. dollar. The Biden team is hopeful that a CBDC could expedite cross-border transactions while safeguarding sensitive data. However, the administration anticipates “unintended consequences,” such as a reliance on CBDC “in times of stress.”
By the release’s own admission, further work is needed by the Federal Reserve to experiment with and measure the feasibility of a CBDC for it to meet it policy objectives, which range from protecting consumers, promoting financial inclusion, and minimizing vulnerabilities to national security. The Treasury Department is tasked with leading an interagency working group to weigh the effects of a CBDC and crowdsource ideas from government experts.
“Together, we are laying the groundwork for a thoughtful, comprehensive approach to mitigating digital assets’ acute risks and-where proven-harnessing their benefits,” said National Economic Council Director Brian Deese and Jake Sullivan, a national security advisor September 16 in a statement. “We remain committed to working with allies, partners, and the broader digital asset community to shape the future of this ecosystem.”
Treasury has released three of the nine framework reports. The first explores the implications of a CBDC on the current system of money and payments “Right now, some aspects of our current payment system are too slow or too expensive,” Treasury Secretary Janet Yellen told reporters on a September 15 press call. Per the report, Treasury will continue to evaluate a possible CBDC incase one “is determined to be in the national interest, Yellen said.
The second report broadly examines the interplay between crypto assets and consumers, investors, and businesses, especially underserved communities. In light of fraud, theft, and scams in the crypto arena, the report calls for more vigilance by regulators and law enforcement authorities to ward off bad actors. Further, the report recommends supervisory guidance be issued as needed to address current and emerging risks. The Financial Literacy and Education Commission should also be leveraged to direct taxpayers to trustworthy information sources on crypto.
Finally, the third report serves as an action plan for addressing misuses of digital asset platforms, such as money laundering. “The actions include strengthening U.S. AML/CFT supervision of virtual asset activities, disrupting illicit actors, expanding public-private dialogue, and improving global regulation and enforcement of international standards,” Yellen said.
Recognizing that the space is “rapidly evolving,” this report suggests the government should continue to monitor threats and solicit input from stakeholders. For its part, Treasury has invited the public to provide comment on “digital-asset-related illicit finance and national security risks” and the new framework. Comments can be sent via the Federal eRulemaking Portal and must be received on or before November 3, 2022.
“Innovation is one of the hallmarks of a vibrant financial system and economy,” Yellen said in a September 16 statement. “But as we have learned painfully from the past, innovation without appropriately addressing the impact of these developments can result in significant disruptions and harm to the financial system and individuals, especially our more vulnerable populations.”
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