New Executive Order Signals Further Delay for the Regulation of Cryptocurrencies and Continuing Interest Around a U.S. Central Bank Digital Currency
New Executive Order Signals Further Delay for the Regulation of Cryptocurrencies and Continuing Interest Around a U.S. Central Bank Digital Currency

President Biden signed an executive order today setting forth an agenda across the U.S. government to address risks related to cryptocurrencies while encouraging continued innovation around digital assets and funds transfer and payment systems. The order represents an acknowledgement by the Biden administration of the prevalence of cryptocurrencies in the U.S. and global economies and their ability to facilitate access to financial services within traditionally underserved communities. The order conveys a need for the U.S. to keep up with these technological advances while addressing cryptocurrency risks in order to continue as a leader in the global financial system. The price of bitcoin, the largest cryptocurrency, surged as details of the order became available. 

Cryptocurrency Regulation

The executive order is unlikely to result in any near-term changes related to cryptocurrency regulation and development. The order does not indicate which agency will regulate cryptocurrency, strays far from a crackdown on the market, and likely delays any policy decisions until after the midterm elections.

Instead, the order highlights risks associated with cryptocurrency, including consumer and investor protection, stability in the financial markets, illicit finance and national security, and potential negative climate impacts. The order primarily seeks to tackle these risks through policy recommendations by the Department of the Treasury, Financial Stability Oversight Council (FSOC), and others. The order directs certain reports within 180 to 210 days of its issuance, including by the following:

  • Secretary of the Treasury, in consultation with Secretary of Labor and heads of other relevant agencies (including independent agencies like the FTC, SEC, CFTC, Federal banking agencies, and CFPB): report on implications of digital assets for—and potential regulatory and legislative actions to protect—consumers, investors, and businesses;
  • Attorney General, in consultation with Secretaries of the Treasury and of Homeland Security: report on role of law enforcement agencies in relation to criminal activity in digital assets;
  • Director of the Office of Science and Technology Policy, in consultation with the heads of other relevant agencies: report on the potential for technologies associated with digital assets (including distributed ledger) to impact climate change efforts and the environment; and
  • Secretary of the Treasury and FSOC: report outlining financial stability risks and regulatory gaps and proposed recommendations, including the need for new legislation, to address these risks and gaps.

The order also encourages the chairs or directors of the relevant independent agencies to consider how the measures within their respective jurisdictions for privacy, consumer protection, and investor and market protection may address these risks and whether additional measures are needed.

Recognizing the heightened risk of financial related crimes posed by the increasing use of digital assets, the order sets forth specific deliverables and deadlines for actions to address these finance and national security risks, both domestically and internationally. The White House fact sheet accompanying the order describes this as “an unprecedented focus of coordinated action across all relevant U.S. Government agencies.” These actions, which are to be undertaken by the Secretary of Treasury in consultation with other relevant secretaries, agency heads, and the Attorney General, include:

  • Updating the National Strategy for Combating Terrorist and Other Illicit Financing within 90 days of its submission to address risks posed by digital assets and developing an action plan to address those risks 30 days later;
  • Notifying the relevant agencies of proposed rulemakings to address these risks within 120 days of completion of certain national AML/CFT reports; and
  • Developing a framework for interagency international engagement to develop global principles and standards for use of and transaction in digital assets and promote their development consistent with legal requirements within 180 days.

The Secretary of Commerce is also charged with establishing a framework to enhance the U.S.’s economic competitiveness in digital asset technologies within 180 days.

The focus on a period of study is a step back for those seeking strong regulation of cryptocurrencies. Regulators have studied cryptocurrencies for years. FinCEN issued guidance on cryptocurrency-payment systems in 2014, the CFTC started an initiative to study cryptocurrency in 2017, and the SEC has engaged in a number of cryptocurrency related enforcement actions.

Government Coin

The order also highlights the “highest urgency” the Biden administration places on research and development efforts into a potential U.S. Central Bank Digital Currency (CBDC).  To that end, the order:

  • Sets a deadline of 180 days from its issuance for the Secretary of the Treasury, in consultation with other secretaries and heads of relevant agencies, to submit a report analyzing, among other things, the potential implications of a U.S. CBDC on the economy, financial inclusion, and national security, as well as the impact of the growth of foreign CBDCs;
  • Encourages the Board of Governors of the Federal Reserve System to continue its research into a potential U.S. CBDC; and
  • Directs the Attorney General, in consultation with the Secretary of the Treasury and the Federal Reserve Chairman, to assess any necessary legislative changes to issue a U.S. CBDC within 180 days and develop a legislative proposal shortly thereafter.

The order does not focus specifically on stablecoins, which were the focus of the report issued by the President’s Working Group on Financial Markets last November. It does acknowledge the prior analyses and assessments of the President’s Working Group and ongoing work of the Federal banking agencies and states that these analyses should be taken into account in the report by Treasury and FSOC.

The primary takeaway from the order is the legitimacy it appears to give to cryptocurrencies’ role in the American economy and the Biden administration’s commitment to promoting efforts to further that role while addressing the many risks associated with cryptocurrencies. While concern that cryptocurrencies may facilitate the evasion of sanctions related to the Ukraine war may serve as a prominent reminder to Congress of the need for a holistic legislative and regulatory framework for digital assets, the ultimate timeline for completing the development of that framework remains unclear.

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