U.S. President Joe Biden signed an executive order on Wednesday requiring the government to assess the risks and benefits of creating a central bank digital currency - the electronic equivalent of cash in your pocket - as well as other cryptocurrency issues.
Here are a few key takeaways:
Central bank digital currency (CBDC)
The Biden administration directed the Treasury Department, along with other key agencies including the Justice and State Departments, to submit a report by September to the White House analyzing the potential costs and benefits of a digital dollar.
The executive order specifically requested that the report focus on how a digital dollar could improve financial inclusion, what implications it could have on economic growth and how foreign digital dollars could impact the greenback's status as the worlds reserve currency.
It also encouraged the Federal Reserve to continue its ongoing research into the possibility of a digital dollar and to “develop a strategic plan” for how a U.S. CBDC could be implemented.
As part of the order, the attorney general will be required to assess whether legislation would be needed to execute a digital dollar, and to draft a legislative proposal taking into account ongoing research from both the Fed and Treasury on the effort.
Risks and opportunities around other digital assets
Biden's EO also tasked the top financial regulators, including U.S. Treasury, the Fed, the Securities and Exchange Commission, the consumer watchdog and banking regulators to produce within roughly four to six months public reports on the implications of U.S. digital assets in general, as well as how changes in the financial market and payment system infrastructures would likely impact consumers, investors, businesses, and economic growth.
It also tasks the agencies with outlining the conditions that would drive “mass adoption of different types of digital assets” and the related risks and opportunities.
The order asked regulators to focus on how technological innovation may impact the larger goal of introducing crypto assets “with an eye toward those most vulnerable.”
The role of crypto in illicit finance
The increasing popularity of digital assets could heighten the risk that they may be used to launder money, finance terror groups and facilitate cyber crimes, the Biden administration warned.
As such, the EO directed the Treasury Department, the Director of National Intelligence and the Department of Homeland Security, among others, to detail how cryptocurrencies could be used in illicit finance and to form a coordinated action plan to mitigate the risks.
The Treasury Department should use that action plan, as well as other interagency research, to form the basis for any rulemakings needed to address how cryptocurrencies could aid illegal activity, the White House said.
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