Recently, most of the attention in crypto from retail investors has been on the massive levels of deleveraging and price action lately. Unbeknownst to most, there has been a lot happening behind the scenes in regards to regulation and CBDCs.
CBDCs are continuously being overlooked by retail investors, and some are starting to discover the seriousness of the developments. Before the Responsible Financial Innovation Act and the US Treasury’s new framework the most notable updates were the Crypto Executive Order and the E-Cash Act.
The E-Cash Act was a Bill proposed in the United States House of Representatives asks for the United States Treasury to develop an alternative to a CBDC. The proposal comes as a response to the continued work the Federal Reserve and the US Treasury undergo to develop a CBDC. This is a proposal for a “digital equivalent” to physical dollars.
Lawmakers passed this US bill to create a more privacy-centric digital dollar. As opposed to CBDCs which are invasive and a threat to privacy. The idea behind E Cash is to be more private and secure to support P2P transactions.
The two newest and largest updates are as follows, with the Responsible Financial Innovation Act being the biggest and most comprehensive piece of bi-partisan legislation the US has ever seen regarding crypto regulatory clarity.
Responsible Financial Innovation Act
Senators Cynthia Lummis (R – Wy) and Kirsten Gillibrand ( D – NY) recently introduced the highly anticipated Responsible Financial Innovation Act on June 7. It is well known that Cynthia Lummis is a strong and outspoken advocate of crypto, most notably for Bitcoin.
“The United States is the global financial leader, and it’s absolutely critical the U.S. plays a leading role in this new frontier.”
Senator Cynthia Lummis
Regulatory clarity has been a point of focus for many. Anyone involved in crypto is looking for clarity. Lummis and Gillibrand intend to accomplish that here with this bill. As it currently stands, much of it still needs to be expanded. Don’t expect this to move any time fast. The bill effectively puts the CFTC in a key role for oversight and responsibility instead of the SEC as it pertains to crypto assets that fit the definition of a commodity versus securities.
The bill sees many of the big name crypto assets like Bitcoin and Ether as commodities. As well as others as seen by “the purpose of the asset and the rights or powers it conveys to the consumer.”
It is no secret the SEC has been dragging their feet on a Bitcoin spot ETF while allowing futures and short Bitcoin ETFs. All while citing “investor protection” and raising many questions about Gary Gensler’s intentions. The Responsible Financial Innovation Act is the very first comprehensive piece of crypto legislation the US has seen, yet.
The bill covers everything from Bitcoin to stablecoins, jurisdictions for the CFTC and SEC, and limiting tax implications by wiping away taxes for transactions less than $200. It is also worth mentioning the bill includes interagency coordination, and the framework for an advisory committee. Like anything, this will take some time to pass, most likely will be seeing certain sections of this pass along the way with adaptations made as needed.
Framework for International Engagement on Digital Assets
Just two days ago The US Treasury, led by Janet Yellen, delivered a framework on the cooperation and engagement with foreign counterparts with digital assets. Essentially a follow through on the Crypto Executive Order that was released back in March.
To refresh on the executive order. The US laid out policy, objectives, with a large focus on CBDCs, framework for mitigating risk, limiting “illicit finance”, and international cooperation. Setting up the US for leading financial innovation is a common theme found in the executive order. They’re behind in CBDC development, but have been more welcoming in terms of supporting crypto innovation with an emphasis on AML/KYC.
The framework released by the Treasury yesterday establishes the jurisdictions toward the development of a CBDC. From 2018-2019 the US led the G7 as Head of the FATF (Financial Action Task Force) and led in the initial international standards on digital assets like CBDCs. So their work here on their own CBDC and their focus on interoperability and cooperation is paramount in the international efforts by all leading nations, even though they seem to be the furthest behind.
Conclusion
Much of the framework for both the Responsible Financial Innovation Act and the US Treasury’s framework that were just recently released is laid out to reinforce the US’s leadership in the global financial system. The objective being to lead the technological changes and remain competitive in these advancements.
Just today, FED Vice Chair Lael Brainard found an opportunity in the recent price action volatility in the crypto market.
“Recent volatility has exposed serious vulnerabilities in the crypto financial system.”
Lael Brainard
Brainard has been a primary proponent of the US’s development of a CBDC. Regardless, her comments surrounding crypto, whether during all time high’s or not, have been similar to Christine Lagarde’s, each being hypercritical and opportunistic. Her thoughts are that a US CBDC will “reinforce” financial stability and “can serve as an advantage”. Of course, neglecting the profound adverse consequences for consumers.
In the end, the US is continually finding the developments toward CBDCs to be of high importance.
