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President Joe Biden on Wednesday signed an executive order on government oversight of cryptocurrency urging the Federal Reserve to investigate whether the central bank should step in and create its own digital currency.
Previewing the order on condition of anonymity under terms set by the White House on Tuesday, a senior administration official said the Biden administration sees the explosive popularity of cryptocurrency as an opportunity to examine the risks and benefits of digital assets.
Pursuant to the executive order, Biden directed the Department of the Treasury and other federal agencies to examine the impact of cryptocurrency on financial stability and national security.
Brian Deese and Jake Sullivan, Biden’s top economic and national security advisers, respectively, said the order establishes the first comprehensive federal digital asset strategy for the United States.
“This will help the United States continue to play a leading role in the innovation and management of the digital asset ecosystem at home and abroad, in a way that protects consumers, is consistent with our democratic values, and enhances the United States’ global competitiveness,” said Deese. Sullivan said in a joint statement Wednesday.
Legislators and administration officials are increasingly voicing concerns that Russia may use cryptocurrency to avoid the impact of sanctions imposed on its banks, oligarchs and oil industry due to the invasion of Ukraine.
Last week, Democratic Sensitive Elizabeth Warren, Mark Warner, and Jack Reed asked the Treasury Department to provide information on how they plan to curb the use of cryptocurrencies to evade sanctions.
The Biden administration has argued that Russia cannot compensate for the loss of US and European trade by converting it to cryptocurrency. Officials said the order of the Democratic president was at work months before Russia’s Vladimir Putin invaded Ukraine last month.
“Crypto is really not a workaround for our sanctions,” Daleep Singh, Biden’s deputy national security and economic adviser, told CNN on Wednesday.
The executive order was widely anticipated by the financial industry, crypto traders, speculators, and lawmakers who are comparing the cryptocurrency market to the Wild West.
The government said that despite the risks, surveys show that about 16% of adult Americans – or 40 million people – have invested in cryptocurrencies. And 43% of men aged 18-29 have invested their money in cryptocurrency.
Coinbase Global Inc., the largest cryptocurrency exchange in the United States, said the company has not seen a recent surge in sanctions-evasion activities.
Treasury Secretary Janet Yellen said last week that “many participants in cryptocurrency networks are subject to anti-money laundering sanctions” and that the industry is “not a place that can be completely avoided.”
As for the Federal Reserve’s handling of digital assets, the central bank issued a statement in January saying that digital currency “will best meet the needs” of the country through a model where banks or payment firms create accounts or digital wallets.
Some participants in the digital currency welcome the idea of greater government involvement with crypto.
Adam Zarazinski, CEO of Inca Digital, a crypto data firm that works for several federal agencies, said the order offers an opportunity to provide “new approaches to financing.”
“The US has to do with increased financial innovation,” said Zarazinksi. He added that China and Russia are looking at crypto and creating their own currencies. More than 100 countries have started or are piloting their own digital sovereign currency, according to the White House.
Katherine Dowling, general counsel at Bitwise Asset Management, a cryptocurrency asset management firm, said an executive order that provides greater legal clarity under government oversight would be “long-term positive for crypto.”
But Hilary Allen, a professor of financial regulation at American University, warned against moving too quickly to adopt cryptocurrencies.
“I think crypto is one place where we need to put the brakes on this innovation until it is better understood,” he said. “As crypto becomes more integrated into our financial system, it creates vulnerabilities for everyone involved in our economy, not just those who invest in crypto.”
The Treasury Department on Tuesday said its financial literacy arm will work to develop consumer-friendly materials to help people “make informed choices about digital assets.”
“History has shown that without adequate safeguards, private forms of money have the potential to pose risks to consumers and the financial system,” said Nellie Liang, undersecretary of national finance.
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