Last week, US President Joe Biden took a tentative first, yet trailblazing, step into acknowledging the digital world of finance. He signed an executive order in which he strongly urges the government to review the risks and benefits of cryptocurrencies.
So what does this mean for the crypto space in the short and long term?
The order focused on six key areas:
- Consumer protection
- Financial stability
- Illicit activity
- US competitiveness
- Financial inclusion
- Responsible innovation
Additionally, Biden wants to place “urgency” on Central Bank Digital Currencies (CBDCs) research and encourages a different look at what he terms the Digital Dollar. This is a clear signal to the Federal Reserve to ramp up efforts to create their digital currency.
It is fair to say that before executing this executive order, lawmakers had not even begun to set their sights on reform to keep up with the new economy. This next step may have caused a divide in the White House and across congress.
Consumer protection
In his executive order, Biden first addressed the issue of consumer protection, a sticking point for many politicians who see price volatility and the potential for rug pulls or scams as a dealbreaker.
Biden’s statement emphasises the need for the “protection of consumers, investors and businesses” by deploying strict data privacy and security rules.
Anyone familiar with crypto will be aware of half-baked companies running away with punters’ money after the first wave of investment, abandoned projects, and other scams or swift pump and dumps.
With regulation comes the opportunity for industry-wide growth as retail and institutional investors respond to greater security in the space. Backed by the US government, there may be more advanced and accessible cryptocurrencies in the offing.
Also Read: Here’s how you can earn passive income with cryptocurrency easily and safely
Illicit activity
The Financial Action Task Force (FATF) has 39 countries as members and is instrumental in intergovernmental cooperation in combating money laundering and terrorist financing. As this is a major concern developing out of the proliferation of cryptocurrencies, it makes sense FATF would lead the way in issuing guidelines on digital assets.
As a result, anti-money laundering (AML) and knowing your customer (KYC) systems are at the forefront of the bill. Biden continues that “we must mitigate the illicit finance and national security risks posed by the misuse of digital assets.”
Whether it’s money laundering, cybercrime and ransomware, narcotics, human trafficking or terrorism, the United States government has consistently seen the lack of money laundering standards in jurisdictions abroad as more than just moral aberrations, but also a great financial risk for itself and the global financial system.
Those making policy on digital currencies thus needs further guarantees, which is something Biden makes clear.
Climate change
Slowing down the effects of climate change is another worldwide issue. Indeed, the EU tackled the topic in a recent session alongside concerns over AML and anonymity regarding digital currencies.
It’s no secret Bitcoin mining consumes a large amount of energy, more than the whole of the Philippines, a country of 110 million people, so Biden has made it clear that moving forward, digital currencies are going to be more responsible about their carbon footprint.
A greener solution for the world of crypto is likely to become the next hot topic. This is a topic that has been brought up by influential characters from Elon Musk to the Pope and, of course, many state leaders.
Some Proof of Work (PoW) chains have already transitioned to greener validation methods, as has the Proof of Stake (PoS) consensus mechanism. The technology is being ironed out and may bear greatly on the future of digital currencies.
US competitiveness
The dollar could have cemented a position at the top of global finance following the 2008 crash had the US government not opened the taps for its allies and left others in the lurch were they deemed not close enough to the sphere of influence. For example, Brazil got access to more dollars when they desperately needed stability. India did not.
Instead, China has filled in the gap by happily forging ties with countries the USA neglected in the past and opening access to renminbi funds: it is now the 8th most traded currency in the world and is trending upwards.
Part of the executive order highlighted the need to reinforce US leadership in the global financial order. Biden clarifies his aim to maintain hegemony by remaining at the forefront of the responsible development and design of digital assets.
Also Read: Crypto governance: Adopting a decentralised approach to governance
China may have banned cryptocurrency completely but will undoubtedly be interested in a digital currency that underpins new forms of payments and capital flows in the international financial system. It would make the belt and road initiative even more seamless.
The current state of geopolitical affairs could advance decision making as the USA looks to build a currency they can better control, trace and ultimately use to make purchases in an uncertain world.
Digital dollar
It all comes down to Biden’s executive order, and posturing toward a digital age economy is the Digital Dollar.
Placing “urgency” upon the need for the administration to research and develop a CBDC and explore design and deployment options is the furthest any president has gone in recognising the potential for a cryptocurrency.
China and Europe are forging ahead with the development of CBDCs, but as mentioned previously, the former has banned all other types of cryptocurrencies.
Suppose America can get it right and create an environment where a Digital Dollar can thrive without being used for illicit activities or aid in money laundering. In that case, the free market will benefit from a rulebook that removes any doubt about what a legal cryptocurrency looks like.
It’s not just about the Digital Dollar becoming a world-leading digital currency, mirroring its Fiat counterpart. Still, about the legitimacy, it lends to the private sector in developing their own cryptocurrencies.
Innovation is how the best technology is delivered to the masses. Granting already popular cryptocurrencies (and those still yet to be developed) the opportunity to become regulated and secure may be the vehicle needed to secure America’s precarious position at the top of the global financial order.
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Image Credit: Alesia Kozik
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