The White House and Biden's Executive Order On Responsible Development of Digital Assets
Just give me the details please!
Below I’ll give a brief summary of what, from my view, is important in the Digital Asset Executive Order (EO). All in all, I think regulation is important but it should not stymie monetary innovation in the same way that it has over the previous five decades.
It’s important to keep an open mind and remember the value and innovation that’s taken place in retail, communication, transportation, and content as those industries have all battled this same beast. By and large, all are better for adopting rather than avoiding change (though there have been obvious and unintended downsides as well).
The general tone is that due to “drastic growth” and “demand” for digital assets it’s time to give it our full attention. It’s now time for US policy around digital assets to evolve with the financial innovation happening.
“While many activities involving digital assets are within the scope of existing domestic laws and regulations, an area where the United States has been a global leader, growing development and adoption of digital assets and related innovations, as well as inconsistent controls to defend against certain key risks, necessitate an evolution and alignment of the United States Government approach to digital assets.”
A LOT of speak on investor protection and inclusivity among many other political narratives. Removing much of these phrases likely cuts the number of sections in half.
National Security was mentioned 20 times, illicit was used 24 times, inclusion 6 times, and climate change 4 times throughout the 10 sections.
The main importance is for the US to remain a leader for the global financial system while also ensuring “safeguards” and promoting “the responsible development of digital assets”. This and ensuring a reduction in systemic risks was the key theme for this section, specifically in section 2(d):
“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, particularly in setting standards that promote: democratic values; the rule of law; privacy; the protection of consumers, investors, and businesses; and interoperability with digital platforms, legacy architecture, and international payment systems.”
Starts by listing a number of Gov Agencies to be onboard with adoption and policy creation. Interestingly there was no mention of the Department of Treasury’s 2018 report on the need for US Financial Innovation.
In my opinion, a lot of the preliminary work was done years ago so these agencies *should* already have a long head start.
US CBDC - an acknowledgment of where “money” has gotten off track,
“Sovereign money is at the core of a well-functioning financial system…”
then followed by a rehash of the first 3 sections.
“… with fewer of the risks posed by private sector-administered digital assets.”
Given the state of fiat currencies, regardless of which government has issued them, it would be more interesting to see this statement proven rather than continuing a perceived belief that the private sector can’t issue money properly. We’ve seen how gov’t management of money works, numerous times, over thousands of years. A better question may be, is it time for a different approach?
“The Chairman of the Federal Reserve is also encouraged to evaluate the extent to which a United States CBDC, based on the potential design options, could enhance or impede the ability of monetary policy to function effectively as a critical macroeconomic stabilization tool.”
A light reference to the weaponization of dollars. A more direct wording and case of this can be found here:
“APNSA and APEP an assessment of whether legislative changes would be necessary to issue a United States CBDC, should it be deemed appropriate and in the national interest; …”
Would legislative changes be needed to introduce a CBDC?
More on investor protection.
“One section of the report shall address the conditions that would drive mass adoption of different types of digital assets and the risks and opportunities such growth might present to United States consumers, investors, and businesses, including a focus on how technological innovation may impact these efforts and with an eye toward those most vulnerable to disparate impacts.”
Interesting mention of “different types” of digital assets.
In the future could we see one digital wallet with many forms of “money” or digital stores of value? That seems to make the most sense if we are seeking to find the best solution for all consumers, regardless of their need for cross-border payments or not.
Throughout the note, there were many references to climate change, its impact, and a few possible solutions for it. There was even a direct aim at Bitcoin, but also phrased like a bitcoiner,
“The report should also address the effect of cryptocurrencies’ consensus mechanisms on energy usage, including research into potential mitigating measures and alternative mechanisms of consensus and the design tradeoffs those may entail.”
There were also a few points in this section referring to the benefits to the energy grid, energy, and energy efficiency.
Understand the systemic risk due to digital assets. This aligns with previous papers and discussions by the US on how to manage and view the rise of Stablecoins. IMO, Stablecoins act very much like a Eurodollar 2.0, which also means though there are benefits there are a number of risks as well.
A number of paragraphs are dedicated to this point, but the wording is mostly a repeat of the previous 5 sections.
More of the same speak from the previous 6 sections but this time with a focus on limiting “illicit finance”. A lot of this framing is the 2017 witch hunt. While there is mild truth, more corruption happens in US dollars and in the broader dollar system than in cryptocurrencies.
It’s important for the US to continue competing in monetary technology and on an international stage. It must be done in a cooperative manner with other leaders to maintain similar laws and regulations and remove arbitrage opportunities.
The US continues to work with international partners to create a set of principles and standards.
This directly supports the conversion of the monetary rails from the current fiat based rails to digital rails driven by cryptocurrencies. In my view, It is very similar to what happened when we moved from a gold standard to partial fiat currencies in WWII. The rules were outlined in 1944 in the Bretton Woods Agreement. At this point, we are awaiting an acknowledged agreement by world leaders that will set the standards for the path forward as it relates to what money is for the 21st Century.