President Biden's Executive Order Focuses on Promoting Innovation and U.S. Leadership in Digital Assets

Last week, the Biden Administration signed a long-awaited, first-of-its-kind Executive Order regarding the development of a national digital asset policy.

At a high level, the Executive Order on Ensuring Responsible Development of Digital Assets directed federal agencies to study and develop a coordinated strategy regarding the regulation of digital assets while establishing six overarching key priorities (consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation). 

Unsurprisingly, the Order speaks to the oft-repeated risks associated with digital assets, including the use of cryptocurrency in illicit activities and the continued need for consumer and investor protection.  These risks have long been a focus of past policy statements (e.g., the October 2020 Report of the Attorney General’s Cyber Digital Task Force (“Cryptocurrency Enforcement Framework”), and are the same concerns that apply to most financial systems (e.g., cash, securities, other stores of value). [1] 

In contrast to traditional financial systems, however, the U.S. has long relied on a piecemeal system of regulation of digital assets (as opposed to the coordinated “whole-of-government” approach).  The Order therefore reflects the need for coordination and coherent policy among regulators and law enforcement as it relates to such issues as investor protection and promoting national security, directing agencies to address current gaps.

As has long been the case, however, to simply focus on the highly sensationalized risks of digital assets is to “miss the forest for the trees.” 

At its core, the Order is an acknowledgement that digital assets form a legitimate, and rapidly growing, asset class offering opportunity for not only investors, but business and government. More shrewdly, the Order recognizes that as a leader in the global financial system, the U.S. has the opportunity to become a center for innovation and investment in digital assets, while at the same time establishing pro-U.S. regulation of this technology.  Indeed, as one commentator aptly noted, “the Order, at times, reads like a call to the digital space race:”[2]

The 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.  The United States derives significant economic and national security benefits from the central role that the United States dollar and United States financial institutions and markets play in the global financial system. Continued United States leadership in the global financial system will sustain United States financial power and promote United States economic interests.[3]

Likewise, the Order reflects a common-sense recognition that digital assets present the opportunity to provide expanded access to financial services and promote U.S. competitiveness in global markets:

The United States has an interest in responsible financial innovation, expanding access to safe and affordable financial services, and reducing the cost of domestic and cross-border funds transfers and payments, including through the continued modernization of public payment systems.[4]

With these principal policy objectives in mind, the Order calls for continued study of an official U.S. CBDC (Central Bank Digital Currency) by the Federal Reserve, reflecting increased Executive Branch interest in the creation of a “digital dollar.” 

Finally, the Order directs interagency coordination and reporting from numerous governmental agencies impacted by the growth and development of digital assets.  As such, the real impact of the Order will likely be realized in the coming months as those agencies undertake the process of creating guidance and policy within their respective scope of authority.

William Kraus
734.213.3434
krausw@butzel.com

[1] It is estimated that just 0.34% of cryptocurrency sent and received in 2020 was connected to criminal activity.  Chainalysis 2021 Crypto Crime Report, available at https://go.chainalysis.com/2021-Crypto-Crime-Report.html.

[2] TRM Insights, Biden’s Executive Order On Crypto Is Out — Read TRM’s Quick Take (March 9, 2022), available at https://www.trmlabs.com/post/bidens-executive-order-on-crypto-is-out-read-trms-quick-take

[3] Order at Sec. 2(d).

[4] Id. at Sec. 1.