Biden administration issues sweeping executive order on crypto

WASHINGTON — President Joe Biden will sign an executive order today directing the federal government to respond to the growth of cryptocurrency, including a mandate to explore whether to create a digital dollar.

The review of the government’s approach to digital assets seeks to harmonize what has to date been a piecemeal and inconsistent approach to crypto regulation. It takes a sweeping look at the industry, addressing together what officials have previously treated as separate regulatory spheres, such as consumer protection, financial stability and national security.

“The United States must maintain technological leadership in this rapidly growing space,” a fact sheet released ahead of the announcement said. “And it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness.”

The executive order tasks the Treasury Department and other agencies to study the growth of digital assets and “ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.” It also directs the Financial Stability Oversight Council to mitigate any systemic financial risks posed by cryptocurrency, and to make regulatory recommendations.

A senior government official said that, in the reports, the administration wants to take “a “careful look” at balancing innovation with managing risks. With that in mind, the studies have timeframes that range from around 90 days to 180 days, the official said.

While the executive order is broad in its scope, it’s largely focused on ordering various agencies to consider the risks of digital currencies rather than mandating specific regulatory outcomes. On a general timeline for regulation, a senior government official said agencies would “move quickly” to act on the recommendations that policymakers provide once the reports are published.

The executive order will direct the federal government to study the creation of a Central Bank Digital Currency, a concept the Federal Reserve has already been actively exploring.

But the order gives the Fed more cover to proceed. Fed Chairman Jerome Powell has emphasized that the Fed will “invest a fair amount of time and expertise” into getting CBDC “right.” The Fed said in a report earlier this year that it would not pursue a digital dollar without “clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”

Other governments, notably China, have considered creating their own digital currencies, putting pressure on the United States to consider its own.

While some financial regulatory agencies have started to consider how to regulate cryptocurrency themselves, the senior government official argued that the executive order outlines Biden’s priorities on the topic — instead of the individual priorities of individual lawmakers — and lays out a federal government-wide approach.

One of the most vocal crypto skeptics in Washington is Securities and Exchange Commission Chairman Gary Gensler, who’s argued that cryptocurrency is the “wild west” of financial regulation and is “rife with fraud, scams and abuse.” Commodity Futures Trading Commission Chairman Rostin Behnam has also argued for his agency to play a vigorous role in tracking down fraud and manipulation in cryptocurrency markets.

The review of the federal government’s approach to cryptocurrency has been in the works for months, according to a senior government official, predating the sanctions against Russia imposed because of its invasion of Ukraine, and concerns that Russian banks and oligarchs could bypass those sanctions using cryptocurrency.

The administration doesn’t believe crypto is a viable workaround sanctions against Russia, according to a senior government official. Nonetheless, the executive order will ask for “unprecedented focus of coordinated action across all relevant U.S. Government agencies to mitigate” illicit finance and national security risks posed by digital assets.

The administration also wants agencies to consider financial inclusion in their assessment of digital assets. The order asks the Treasury Department and other agencies to produce a report on the future of money and payment systems including its implications for financial inclusion.

A senior government official said that the federal government is trying to suss out how new technologies can help issues around underbanked and unbanked Americans, including faster depositing of paychecks, as well as the risks that vulnerable communities face with the rise of digital assets.

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