[co-author: Kristen Bartolotta]

As a result of the rise in digital assets, President Biden signed an Executive Order on March 9, 2022 ordering a review of the nation’s approach to cryptocurrency. The Executive Order on Ensuring Responsible Development of Digital Assets (the “Order”) contains both broad policy objectives and specific analysis to be conducted by the federal government. The Order identifies several key national priorities related to digital assets and directs the executive branch to follow the interagency process that President Biden previously implemented for the National Security Council to implement the Order. The Order directs a broad swath of U.S. federal agencies to analyze and issue assessments related to digital assets, including the viability of a U.S. central bank digital currency (“CBDC”), a digital form of U.S. sovereign currency.

The United States is not the first to consider a CBDC; as the Executive Order notes monetary authorities globally are exploring, and in some instances introducing, CBDCs. More than 100 countries are currently exploring or piloting CBDCs. The Order directs the federal government, specifically the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Attorney General, in consultation with other agencies and the administration, to submit to the President a report on the future of money and payment systems. The report will include at a minimum:

• Conditions that drive broad adoption of digital assets;
• The extent to which technological innovation may influence these outcomes; and
• The implications for the United States financial system.

Additionally, the Secretary of the Treasury must work with the Secretary of Labor and other relevant agencies to determine what measures are needed to protect consumers, investors, and businesses amidst the increased use of digital assets. With increased use of digital assets and exchanges there may be increased risk of fraud and theft, privacy and data breaches, unfair and abusive acts or practices, and other cyber incidents. The Director of the Office of Science and Technology Policy and the Chief Technology Officer of the United States are similarly ordered to produce a technical evaluation with the same concerns in mind, in consultation with Treasury and the Federal Reserve.

The Order also emphasizes the Biden administration’s concern regarding the potential illicit use of digital assets and the related financial and national security concerns, which include “money laundering, cybercrime and ransomware,” as well as a recognition that digital assets may also be used to circumvent U.S. and foreign financial sanctions regimes. Against the backdrop of the proliferation of ransomware attacks and recently imposed sanctions due to Russian aggression in Ukraine, the Order calls for coordinated action across all relevant U.S. government agencies to mitigate these risks, which the Order treats as “finance and national security risks,” and directs the agencies to work with U.S. allies and partners to ensure a secure international response.

In addition to the actions related to the U.S. CBDC and the actions to limit illicit finance and associated national security risk and to foster international cooperation, the Order also clearly states the Biden Administration’s policy to “reinforce [U.S.] leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets.” Indeed, the Order is also intended to promote technological innovation, but in a “responsible” manner. To that end, the Order also includes measures to protect consumers, investors, and businesses as well as actions to promote financial stability, mitigate systemic risk, and strengthen market integrity.

Taken together, these policy statements and directions for further analysis signal the Biden Administration’s intent to create a cohesive and linear response to the rise of cryptocurrency and other digital assets.

The schedule for agency reports to the President, which shall include policy recommendations, provide a roadmap to the Biden Administration’s priorities and potential decision points for the regulation of digital assets:

• By June 7, 2022 (within 90 days of the Order):
  • Report of recommendations to strengthen international law enforcement cooperation for detecting, investigating, and prosecuting criminal activity related to digital assets.
• By July 7, 2022 (within 120 days of March 1, 2022), the Secretary of the Treasury must notify and consult with other relevant federal agencies regarding any proposed rulemakings to address digital asset illicit finance risks.
• By July 7, 2022 (within 120 days of the order):
  • Establish a framework for interagency international cooperation, with a report to be submitted one year later to assess the actions taken and the international framework’s effectiveness.
• By September 5, 2022 (within 180 days of the order):
  • Report on the future of money and payment systems
  • Report on the impact of digital assets on U.S. consumers, investors, business and implications for economic growth
  • Assessment of whether legislative changes needed to issue a U.S. CBDC
  • A technical evaluation of the technological infrastructure, capacity, and expertise needed across federal agencies to facilitate and support the introduction of a CBDC system
  • Report on the role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets
  • Report on the connections between distributed ledger technologies and associated economic, energy, and environmental considerations; with an update to the report due after one year of submission of the report
• By October 5, 2022 (within 210 days of the order):
  • A legislative proposal for any changes needed to issue a U.S. CBDC
  • A report from the Financial Stability Oversight Council (FSOC) that outlines the specific financial stability risks and regulatory gaps posed by various types of digital assets

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