The “Executive Order on Ensuring Responsible Development of Digital Assets” was released today. It is clear that there will be a lot of development occurring over the next 6 -12 months.
The document is over 5000 words and roughly 15 pages long, this article will cover the relevant highlights for you. It is mostly a lot of statements regarding future planning, and nothing happening immediately. The most important sections of the article involve policy, objectives, CBDCs, mitigating risk, limiting “illicit finance”, and international cooperation.
Throughout the article phrases like “the rise of digital assets”, “increased use of digital assets”, and “adoption of digital assets” occur 18 different times. An acknowledgement of both the institutional and individual adoption of crypto that has been on display these past few years.
“Monetary authorities” have been testing and collecting information on a framework and use case for CBDCs and researching digital assets.
A central bank digital currency (CBDC) is a digital claim on central bank “money”. The CBDC is both issued and backed by the central bank. $1 of CBDC is worth the same as a $1 bill or $1 in a bank account. In this case fiat money ($USD, $EURO). They are “pegged” to those currencies on a 1:1 ratio so they maintain their equivalence.
Up until very recently the idea of this was thought to be “crazy” by the general public. Now, we are in the midst of their development, testing, and full scale use like we saw in China during the Beijing Olympics. China tested a larger setting for the Digital Yuan, DC/EP (Digital Currency/Electronic Payment).
Setting up the US for leading financial innovation is a common theme found in the document. They’re behind in CBDC development, but have been more welcoming in terms of supporting crypto innovation with an emphasis on AML/KYC. There was also a mention on “human rights” in the policy section to be seen in terms of equity, banking the unbanked for equal access, and the right to be the bearer of your financial assets.
Objectives and Investor Protection
Much like Gary Gensler, protecting investors, consumers, and businesses is the “top priority”. Creating an appropriate environment that promotes developing the digital asset space.
“We must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets. The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets and the technology that underpins new forms of payments and capital flows in the international financial system”
This section also expands on the importance for mitigating “illicit finance” and national security risks “posed by the misuse of digital assets.” However, Coinbase covered this subject last year in their blog.
All the same “concerns” raised by Treasury Secretary Janet Yellen were mentioned here in this article, “money laundering, cybercrime and ransomware, narcotics and human trafficking, and terrorism and proliferation financing”
Protecting investors is an important aspect for the administrations and delegating that is going to be a cross agency issue. Who is going to oversee certain jurisdictions and how is authority going to be structured? These are all questions left to be answered. Much of the document has investor protections left up in the air until there is more regulatory clarity.
They want to make sure that businesses like centralized exchanges will be operating as such and safeguard the US leading financial and technological innovation.
Not a surprise this subject was heavily covered in the document. The Federal Reserve, the European Central Bank, The People’s Bank of China, The Bank of Japan, and all other major central banks are carefully designing their CBDCs. The European Central Bank estimates that upwards of ~80 – 90% of central banks are exploring this “digital” version, and the Bank for International Settlements projects the figure is ~ 70%.
“A United States CBDC may have the potential to support efficient and low-cost transactions, particularly for cross‑border funds transfers and payments, and to foster greater access to the financial system, with fewer of the risks posed by private sector-administered digital assets. ”
The executive order is asking for a report within the next 180 days covering “the future of money and payment systems, including the conditions that drive broad adoption of digital assets; the extent to which technological innovation may influence these outcomes; and the implications for the United States financial system, the modernization of and changes to payment systems, economic growth, financial inclusion, and national security.”
The document also lists the possible designs of a CBDC, and implications for economic growth and stability.
“Sovereign money is at the core of a well-functioning financial system, macroeconomic stabilization policies, and economic growth…the administration places the highest urgency on R&D efforts into the potential design and deployment options of a US CBDC.”
Jerome Powell and the Board of Governors at the Federal Reserve is included in the document as continuing the research and reporting on the continuing developments of a CBDC. His role is to “continue to assess the optimal form of a United States CBDC, and to develop a strategic plan for Federal Reserve and broader United States Government action, as appropriate, that evaluates the necessary steps and requirements for the potential implementation and launch of a United States CBDC.”
The goal here is to bring together multiple departments and agencies like the FED, and the US Treasury to come together on this mandate. In the next 6 months answers on the technological efficiency of CBDCs and the distributed ledger technology will be assessed and reported back, regarding economic and energy impacts.
The energy implications on “implications for energy policy, including as it relates to grid management and reliability, energy efficiency incentives and standards, and sources of energy supply” is something important to be noted regarding mining.
Financial Stability and Risk Mitigation
This section involves the financial stability risks and regulation needed. This is set by the ongoing adoption of crypto.
There needs to be regulatory clarity, and it looks like we’re getting some direction as to what that should look like. They’re acknowledging the differences across different digital assets. The different applications, characteristics, and uses for different cryptocurrencies is important and specifically noted.
The potential for “financial stability risks” is going to be addressed in the next 6-7 months.
“consider the particular features of various types of digital assets and include recommendations that address the identified financial stability risks posed by these digital assets, including any proposals for additional or adjusted regulation and supervision as well as for new legislation.”
The document addresses the fact that this global technology and the implications of cross-border operations needs clarity for interoperability. Especially for CBDCs in retail and wholesale applications.
“the United States established the G7 Digital Payments Experts Group to discuss CBDCs, stablecoins, and other digital payment issues. The G7 report outlining a set of policy principles for CBDCs is an important contribution to establishing guidelines for jurisdictions for the exploration and potential development of CBDCs”
Criminal activity relating to digital assets is the most urgent matter requiring a response in the next 90 days. The rest of the reports urge a response in the next 6 months, so we will be gaining more insight on this by Q2.
The executive order asks for a response on “establishing a framework for enhancing United States economic competitiveness in, and leveraging of, digital asset technologies.” and that is to come in the next 6 months.
In summary, most of the executive order is a document asking for answers and clarity from agencies and departments for later this year. It is an executive order asking for things to be planned out and implemented for later this year. It is usually how these things work.
The big things to come out from this are:
A large sense of urgency for CBDC research and development, human rights, leading financial innovation and technological innovation, in 90 days we will have more answers and a response from the white house on AML/KYC.
Buy and Hold Your Bitcoin, take your crypto off of the centralized exchanges!