On March 9, 2022, President Biden issued the Executive Order Ensuring Responsible Development of Digital Assets setting forth six principal policy objectives in furtherance of U.S. initiatives in the crypto and digital asset space:
(1) Consumer and investor protection;
(2) Protection of U.S. and global financial stability and mitigation of systemic risk;
(3) Reduction of illicit finance and national security risks;
(4) Reinforcement of U.S. leadership in the global financial system and technological and economic competitiveness;
(5) Promotion of access to safe and affordable financial services; and
(6) Support for responsible development and use of digital assets.
Notably, the Executive Order commands research and development efforts into the potential design and deployment options of a U.S. central bank digital currency (CBDC). So far, the U.S. has remained relatively silent while other countries began experimenting with a CBDC. The Executive Order acknowledges the urgency to keep pace with other countries, including to maintain leadership and centrality in the international financial system. As we witness global conflicts unfold in real-time and the resulting economic effects, it is no surprise that the U.S. government has a keen interest to ensure the nation is not left out of conversations and involvement in future iterations of monetary instruments, and that it possesses the most powerful tools to combat illicit activities and crimes.
Reinforcing U.S. leadership globally in technological and economic competitiveness sets an important tone from the top of the U.S. federal government: digital assets are here to stay and should be normalized and incorporated into the U.S. financial system and regulatory regime.
While not a concrete step, this could have follow-on effects in terms of how agencies, even those named indirectly in the proposal, think about these assets and technologies. For instance, the SEC recently proposed rules that could regulate “defi” protocols and require them to register as broker-dealers and alternative trading systems. A clear executive signal that these technologies are to be embraced could cause the SEC to re-think its approach in this area, at least with respect to transparency regarding scope. For market participants more broadly, this may translate into greater receptiveness among regulators and decreased volatility, while on the other side of the (digital) coin, it sets up an expectation of broad regulation and scrutiny. Ultimately, clearer guidance and a path forward would be good for the industry and regulators alike.
In terms of next steps, the Assistants to the President for National Security Affairs and Economic Policy are directed to coordinate the executive branch actions through the interagency process necessary to implement the Executive Order. The Secretaries of State and Treasury as well asthe Attorney General are among the department heads called out to participate in the interagency process. The Executive Order also expects representatives of other agencies, including the banking regulators, the CFTC and the SEC, to be consulted in this process. In the next few months, these departments and agencies should begin to produce various deliverables such as study reports, assessments, legislative proposals, and technical evaluations that will inform the governmental action to further the enumerated policy objectives.
Although the Executive Order is unlikely to result in immediate legislative or regulatory changes, clear executive direction has been missing since the inception of this nascent space. Ultimately, it seems to signal at least an additional few months (or more) without definitive guidance, as it would seem counter to the President’s directive of studies, consideration, and reports to inform sweeping regulatory change affecting the digital asset and blockchain space. It is also not clear whether pending regulatory and law enforcement investigations and other actions will be affected by the Executive Order.
