President Joe Biden has pleasantly surprised the crypto market by issuing a comprehensive (albeit vague) executive order that will outline how the government will control the booming industry.
So what happens next?
The US Department of the Treasury leads or participates in most of the studies, which take between 60 and 180 days on average. Now that the benchmarks have been drawn, the question of how officials in Washington think and how this is reflected in cryptocurrency policy remains open.
One report the agency is tasked with keeping concerns the future of payments and money. The administration is expected to actively explore issuing a central bank digital currency (CBDC).
The biggest questions are how the digital dollar will interact with stablecoins and other private digital assets, how they relate to the strategic position of the US dollar in general, and the relationship between digital and fiat assets.
CBDCs will be tested for use as real-time payments — or there may be another option, according to senior administration officials. The Fed’s future real-time payment system, FedNow, will allow consumers and businesses to send payments instantly starting in 2023 and could be a potential test case.
The adoption of the US CBDC could fundamentally change the role of both central and commercial banking. Lisa Ledbetter, Partner, Reed Smith Financial Industry Group.
Officials are considering what needs CBDC will serve after FedNow is released, and real-time payments through this system are more possible.
“You could see stablecoins evolve faster and broader if there is adequate disclosure, requirements certification, and an audit function,” said Chris Giancarlo, former chairman of the Commodity Futures Exchange Commission.
“In the future, retail payments could be made through commercial stablecoins, and wholesale payments through the FedNow payment system,” said Giancarlo, also a co-founder of the Digital Dollar project, which explored the connection between public values and CBDCs.
The story goes on
As other countries like China promote their own digital currencies, Giancarlo is pushing for the US to lead the CBDC.
“I don’t think the US is a pioneer in terms of deploying [a CBDC], but we don’t want the US to be the first to explore this technology,” Giancarlo told Yahoo Finance. “It’s like 5G. China is developing a digital yuan not only for domestic use, but also for its export.”
For every country that wants to move away from the dollar, China will export the basic core technology of CBDC to them, he said. “It will be a CBDC in a box provided to you by the People’s Bank of China,” he says. “If you are Cuba, Ecuador, Venezuela, this will be what you import from China.
Question about CBDC
Photo taken July 15, 2021 of the US Federal Reserve in Washington, DC, USA. US Federal Reserve Chairman Jerome Powell said on Thursday that he was “legitimately undecided” on the benefits and costs of issuing the US central bank digital currency CBDC. “I think our responsibility is to explore both technological and political issues over the next few years. That’s what we’re going to do to be able to make an informed recommendation,” Powell said during the hearing. before the Senate Banking Committee when asked to clarify his position on the CBDC. (Photo by Liu Jie/Xinhua via Getty Images)
Another big question that needs to be answered is the compatibility of the American CBDC with international counterparts and its structure, officials said. Officials say there are also some private or multi-central bank projects looking at CBDC clearing and CBDC interoperability.
Biden’s executive order calls on the executive branch to take the lead in this potential outcome. If the US engages in CBDC, officials are considering that the US token will interact seamlessly with the global system, given that the US dollar is the main reserve currency and is central to the global financial system.
“The adoption of a CBDC in the US could fundamentally change the role of both central and commercial banking,” said Lisa Ledbetter, partner at Reed Smith’s Financial Industry Group.
“Weighing all the factors in EO is a political and practical balance. The US CBDC will have international implications, so it is critical that the private sector, foreign central banks and other stakeholders have a seat at the negotiating table,” said Ledbetter, who has worked at Freddie Mac, the Federal Deposit Insurance Corporation (FDIC) and the Treasury.
However, it is not known what the digital dollar will look like at the end of the process. The Federal Reserve is also being asked to build on its research paper on the pros and cons of CBDC, reflecting on how the executive order gave such a tool “extreme urgency.”
If the administration decides that a digital dollar is in the country’s best interest, officials will decide whether or not to introduce legislation. The Department of Justice has been tasked with looking into whether legislation is required to move forward with the CBDC.
“As the Fed is already experimenting with digital currencies and a hypothetical CBDC, I expect the results of this testing will make it into the EO study and next steps,” Ledbetter told Yahoo Finance.
Risks and decisions
As the crypto industry is growing rapidly, the administration is very closely monitoring the risks to investors, consumers, and financial stability associated with cryptocurrencies.
EO is tasking the Financial Stability Oversight Board (FSOC), established in the wake of the 2008 financial crisis, to monitor risks to the financial system and examine what systemic risks digital assets pose to the financial system.
The President’s Financial Markets Working Group (PWG) has already directed the FSOC to look into the systemic risks of stablecoins. Administration officials say they will view the cryptocurrency as a whole through a lens similar to the PWG report on stablecoins. This report raised the risks of a stablecoin run, the operational stability of the stablecoin issuance model, and the risks associated with energy and commercial business consolidation.
Officials say the FSOC may follow a similar process to identify risks and solutions. But an official familiar with the matter told Yahoo Finance that it’s unclear whether the FSOC will become too detailed on systemic risks, which are better left to the regulator or legislation.
Once the reports are completed, the government will work with all agencies to come to a consensus to decide whether, in certain cases, a set of recommendations should be submitted to Congress for writing legislation, or if the agencies will write new rules. under their rule.
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