On March 9, 2022, President Biden signed an Executive Order to Ensure Responsible Development of Digital Assets (“Executive Order”) to mobilize the federal government to develop a digital asset strategy, with the goal of encouraging innovation in a way that mitigates risk for consumers, investors and businesses. The executive order mandates an interagency approach between multiple executive departments and federal agencies to conduct reporting and analysis on key issues impacting digital assets, including consideration of U.S. central bank digital currencies ( “CBDC”). The Executive Order identifies six main policy objectives:
- protect American consumers, investors and businesses;
- protect US and global financial stability and mitigate systemic risk;
- mitigate the illicit finance and national security risks posed by the misuse of digital assets;
- strengthen American leadership in the global financial system and in technological and economic competitiveness;
- promote access to safe and affordable financial services; and
- support technological advances that promote the responsible development and use of digital assets.
The executive order calls on the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy to use the interagency process outlined in the February 4, 2021 National Security Memorandum 2/nSM-2 enable relevant executive departments and agencies to implement policy objectives. The executive order calls for a series of reports within 180 days and 210 days, assessing the benefits and risks of adopting digital assets in the US financial system.
US central bank digital currency position
Significantly, the executive order lays out the Biden administration’s policy on a US CBDC, which places “the highest urgency on research and development efforts into design and deployment options for a US CBDC.” The stated policy envisions the United States as being at the forefront of international CBDC discussions and working toward a currency that would be “interoperable” with digital currencies that may be issued in other jurisdictions. Echoing many of the themes set out in the Federal Reserve’s discussion paper on the The US Dollar in the Age of Digital Transformation, the executive order directs the Secretary of the Treasury – in consultation with other relevant agencies – to report on the future of the monetary and payment systems. Specifically, the order requires an analysis of the potential implications that various designs of a U.S. CBDC could have in several distinct areas, including:
- economic growth and stability;
- financial inclusion and better access to the financial system;
- digital assets managed by the private sector; and
- national security and financial crime, including risk analysis addressing law enforcement interests such as money laundering and economic sanctions.
The analysis led by the executive order will also address the future of digital currencies around the world, the potential impact on democracy, and the extent to which foreign CBDCs could displace existing currencies and could undermine the financial centrality of states. United.
The executive order encourages the Chairman of the Federal Reserve to continue his ongoing research into CBDCs, including evaluating the steps and requirements necessary for the potential implementation and launch of a U.S. CBDC if deemed in the future. interest of the United States. . The executive order also directs the Attorney General to submit an assessment of whether legislative changes would be required to issue a CBDC in the United States and, if so, to provide a corresponding legislative proposal.
Protecting American Consumers, Investors and Businesses
In light of the perceived risks presented by the increased use of digital assets, exchanges and trading platforms, the executive order directs members of the executive branch to provide reports addressing different topics related to the protection of consumers, investors and companies. Among other reports, the Secretary of the Treasury is to lead a report addressing the implications of the adoption of digital assets on financial markets and payment systems. This report should provide policy recommendations, including potential actions for regulators and Congress.
The executive order directs the Director of the Office of Science and Technology Policy and the Chief Technology Officer of the United States to assess the technology infrastructure, capacity, and expertise that relevant agencies would need to support the introduction of an American CBDC. Additionally, it asks the Attorney General to report on the role of law enforcement in detecting, investigating, and prosecuting criminal activity related to digital assets, including recommendations for regulatory and legislative action. And it directs the Attorney General and federal regulators to examine the impact of digital assets on competition policy, the need for privacy and consumer protections, the need for market protections, and the possible impact distributed ledger technologies may have on efforts to address climate change given their power consumption.
With respect to promoting financial stability, mitigating systemic risk and strengthening market integrity, the executive order highlights the role that federal regulators have played, through the Financial Stability Oversight Council (“FSOC”), to address the risks that digital assets pose to financial stability. and market integrity. The executive order directs the Secretary of the Treasury to convene the FSOC to report and make recommendations to address financial stability risks and regulatory gaps posed by various types of digital assets.
National security risks and illicit financing
The executive order highlights the role that digital assets have played in facilitating financial networks linked to cybercrime and their increased use to facilitate money laundering, terrorist financing, corruption, fraud and theft. In light of ongoing efforts to develop the National Strategy for Combating Terrorism and Other Illicit Financing (“Strategy”), the decree authorizes relevant executive departments and agencies to submit additional annexes to the Strategy, which would offer insights information on the risks of illicit finance posed by digital assets. Within 120 days of presenting the strategy to Congress, the Secretary of the Treasury must develop a coordinated action plan to mitigate illicit finance and national security risks related to digital assets.
The Biden administration, through the executive order, has outlined its policy of promoting international cooperation and American competitiveness. Recognizing that technology-driven financial innovation is typically cross-border, the Administration recognized the need for continued international cooperation to ensure consistent regulation across jurisdictions. Accordingly, the United States will work closely with international partners on standards for the development and operation of digital payment architectures and CBDCs to create efficiencies and ensure that any new cross-border payment system aligns with US values and regulations. Consistent with this objective, the executive order directs the Secretary of the Treasury to establish a framework for interagency international engagement to adapt, update, and enhance the adoption of global principles and standards on how digital assets are used and traded and promote digital development. CBDC assets and technologies that comply with American values and legal requirements.
Although it will take at least six months before we see the results of these interagency efforts, President Biden’s executive order outlines the administration’s strategy to encourage innovation, identify and mitigate potential risks posed. by digital assets and maintain America’s leadership position on the global economic stage. While the order calls for comprehensive analysis and reporting from key regulatory stakeholders, it could serve as a catalyst for federal agencies to issue additional guidance on the application of existing regulations to digital assets. The schedule of reports required by the order signals a clear commitment by the current administration to address regulatory gaps regarding digital assets and potentially pave the way for the implementation of a U.S. CBDC in the U.S. economy.
1. Clayton Stallbaumer and Brian Coughlan recently published a note on the January 20, 2022 Federal Reserve Discussion Paper, Currency and Payments: The US Dollar in the Age of Digital Transformation.