The Biden administration is expressing support for creating a central bank digital currency while saying more research is needed on the plan.
Although not mandating the creation of a CBDC, Biden directed the U.S. Treasury to lead an interagency working group to analyze the possibility of the digital dollar in a cryptocurrency regulatory framework issued Sept. 16. The report came six months after Biden signed an executive order calling on federal agencies to evaluate cryptocurrencies and issue final reports.
The administration said a CBDC could help the U.S. preserve its role as a global financial leader and serve as an effective enforcer of sanctions, enable a more efficient payment system, foster tech innovation, and facilitate faster cross-border transactions. “It could promote financial inclusion and equity by enabling access for a broad set of consumers,” the administration stated. “It could foster economic growth and stability, protect against cyber and operational risks, safeguard the privacy of sensitive data, and minimize the risks of illicit financial transactions.”
The Federal Reserve announced in January that it will not issue a CBDC “without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” Pushback to a potential CBDC remains strong. A bill introduced last week by Sen. Mike Lee (R-Nev.) would prevent the Federal Reserve from issuing a CBDC. In introducing the legislation, Lee said a CBDC “would alter the ability of financial institutions to function as lenders, while giving the federal government knowledge of every purchase that uses a CBDC.”
The Independent Community Bankers Association of America and American Bankers Association have both called on Congress not to authorize the creation of a CBDC due to the perceived risks to existing payments and banking systems.
In the regulatory framework, Biden outlined the approach federal regulators should take to combat illicit crypto activity. He called on the Securities and Exchange Commission and Commodity Futures Trading Commission to “aggressively” investigate potential illegal activity within the industry.
“Regulatory and law enforcement agencies are also urged to collaborate to address acute digital risks facing consumers, investors and businesses,” the administration stated. “In addition, agencies are encouraged to share data on consumer complaints regarding digital assets — ensuring each agency’s activities are maximally effective.”
The rapid growth of the crypo industry, along with its lack of consumer protections, has caused security concerns globally. Earlier this year, the Financial Stability Board deemed the market as possibly threatening global financial security. In one day, a massive sell-off erased more than $200 billion from the crypto market. The global market capitalization of cryptocurrencies, which reached $3 trillion last year, has lost two-thirds of that value.
Biden will evaluate whether to recommend to Congress that digital asset exchanges and NFT platforms be subjected to requirements under the Bank Secrecy Act and laws banning unlicensed money transmitting. He will also consider recommending stiffer penalties for unlicensed money transmitting.