On March 9, 2022, the White House released its much anticipated Executive Order on Ensuring Responsible Development of Digital Assets. The 5,500-word document signals the Biden administration’s intent to seriously engage with the digital assets industry across a broad range of domains and sets forth a comprehensive agenda for cooperation across federal agencies to study various aspects of concern over the course of the coming year.
The Executive Order outlines a policy position that takes as its starting point the remarkable growth and staying power of digital assets. Second, the administration states clearly the central role of the United States in “responsible financial innovation” with the goal of improving access to financial services, reducing costs, and modernizing payment systems. Finally, the order outlines the importance of mitigating a whole host of risks associated with this new asset class, from illicit financing and sanctions evasion to consumer protection and systemic risk.
The bulk of the Executive Order defines the domains of inquiry to be studied, along with a framework for roles, responsibilities, and cooperation across agencies. Within this framework, the order outlines the following primary objectives:
The report demonstrates a concern with a broad range of risks, including illicit financing and national security (mentioning ransomware and cybercrime four times each), consumer/investor protections, market integrity, and systemic/macroeconomic risks. Furthermore, the report states that the US will seek to ensure that foreign CBDCs or related payment systems, with which a potential US CBDC will be interoperable, are deployed in a manner “consistent with United States values and legal requirements.” Here, the administration may be hinting at concerns with privacy and mass surveillance risks associated with CBDCs, as well as the need to shore up AML/CFT weaknesses in certain jurisdictions.
Overall, the report’s tone and content should allay industry fears that the Executive Branch would take a one-sided approach in its assessment of the industry and signal draconian regulatory issues in the future. In fact, the Executive Order demonstrates an intent to deeply engage with not only the risks but also with the potential benefits that digital assets and related technologies may confer on both individuals and the United States as a whole. First, while the report places significant emphasis on the need to study a US CBDC, it leaves room for other financial technologies, innovations, and digital assets, though mentioning none by name. Second, the report demonstrates a nuanced understanding of the environmental impact of digital currencies, referring obliquely to Bitcoin and Ethereum’s energy-intensive “proof of work” consensus mechanisms, and the need to conduct a multifaceted study that considers “grid reliability” and “energy efficiency incentives.” Finally, the report’s coordination of activities provides, at least in the short term, specific tasks for particular regulatory agencies, while potentially attempting to limit their remit by defining their focus. Relatedly, digital assets legislation that is being prepared by members of Congress will now have to consider their alignment, or lack thereof, with the above Executive Order.