On March 9, 2022, President Joe Biden signed an executive order that outlines the administration’s strategy to address cryptoasset risks, develop a framework to promote responsible innovation and competition with digital assets, and conduct more research on the potential impacts of a digital dollar.

The Executive Order

The executive order is wide-ranging in its actions, with seven primary directives issued to multiple agencies, including prudential regulators and the Commerce Department.

1. Address consumer, business, and investor protection — In recognition of the growing risk of crypto-related cybercrimes and incidents, the order instructs the Treasury Department and other government agencies to evaluate how digital assets may impact financial markets and to develop policy recommendations to ensure regulators have appropriate oversight capabilities and address systemic risks.

   The EO directs the Treasury Department to work with the Labor Department, Consumer Financial Protection Bureau, Federal Trade Commission, Securities and Exchange Commission, and federal banking regulators to issue a report within 180 days that analyzes the impact of digital assets on the financial markets and payment system and assesses “the conditions that would drive mass adoption of different types of digital assets and the risks and opportunities such growth might present to United States consumers, investors, and businesses.”

2. Address U.S. and global financial stability and systemic risks — The EO directs the Financial Stability Oversight Council (FSOC) to assess systemic risks posed by digital assets and provide recommendations to close regulatory gaps.

3. Mitigate illicit use of digital assets by bad actors and threats to national security — The EO calls upon multiple agencies to collaborate on efforts to combat the illicit use of digital assets, including increased cooperation with allies and partners to make sure international frameworks and actions are “aligned and responsive to risks.”

4. Promote innovation and competition and reinforce U.S. leadership in technology and financial markets — To ensure the United States maintains its leading role in developing new technologies and serving as the keystone in the global financial system, the EO directs the Commerce Department to create a framework to encourage innovation and competition in the digital asset economy. The framework will then serve as a guiding document for other agencies as they research digital assets.

5. Promote equitable access to financial services — The order identifies the need for “safe, affordable, and accessible financial services” as a national priority and recognizes that digital assets may have a role to play. It directs Treasury Secretary Janet Yellen to work with other agencies to produce a report about the future of money and payment systems within 180 days of the order.

   The report will evaluate the impacts of digital assets on national security, financial inclusion, and economic development. Separately, the U.S. attorney general will consult with the Treasury Department and Federal Reserve to determine whether legislative changes are necessary to issue a CBDC and then develop legislative proposals within 210 days of the order’s release.

6. Support innovation and responsible development and use of digital assets — The order calls for more research on the development and design of digital asset technologies. It identifies several areas of focus, including ensuring privacy, mitigating climate concerns, and preventing illicit uses by bad actors.

   The order says the director of the Office of Science and Technology Policy will consult with the Treasury Department, Energy Department, Environmental Protection Agency, Council of Economic Advisers, and national climate advisor to report within 180 days on the “connections between distributed ledger technology and short-, medium-, and long-term economic and energy transitions; the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad; and the impacts these technologies have on the environment.”

7. Conduct research on a U.S. central bank digital currency (CBDC) — The EO says President Biden “places the highest urgency” on the government to continue its research on the technology that might be needed to support a potential digital dollar and protect U.S. interests. Notably, it does not specifically endorse a digital dollar, but calls for the research to assess benefits and risks and “actions required to launch a United States CBDC if doing so is deemed to be in the national interest.”

   To that end, the order supports ongoing efforts by the Federal Reserve to consider the development of a digital dollar. Finally, it encourages participation with other countries as they experiment with CBDCs to ensure the United States will continue to play a leading role in the global financial system.

Impact for Community Banks

The executive order does not have immediate effects for community banks. However, it appears to mark a turning point in the government’s approach to digital assets and developing the future of the U.S. financial and payment systems.

In a national news release following the release of the EO, ICBA reiterated its support for a coordinated approach to regulating digital assets to:

• Avoid disintermediating community banks and undermining their ability to support local communities.
• Ensure consistent oversight of cryptocurrency service providers.
• Establish clear guidelines for permissible bank activities.
• Prevent gaps to minimize the risk of regulatory arbitrage.
• Ensure any introduction of a U.S. CBDC is predicated on clear objectives and a solid legal framework, does not harm the financial system, and follows engagement with community banks and other stakeholders.

As federal departments and agencies develop their reports, ICBA will work closely with them to convey the community bank perspective on digital assets and the potential impact of crypto policies on local communities.

Meanwhile, ICBA will continue working with community bankers to understand and communicate the implications of the findings. While the EO is a clear signal that bankers need to learn more about digital assets, ICBA stands ready to help community banks navigate these new technologies and their challenges.

For the past year, ICBA has called on regulators to harmonize their approach to digital assets to ensure strong and consistent oversight of cryptocurrency service providers in light of the risks posed, and establish a path forward with clear guidelines for permissible activities by community banks.

ICBA has also urged regulators, law enforcement, and national security agencies to coordinate their efforts to combat ransomware and prevent illicit use of cryptocurrencies by bad actors. The executive order, therefore, marks a step in the right direction and demonstrates the strength of ICBA’s efforts to advocate for more collaboration and regulatory clarity.

Nevertheless, there is still more work to be done, and questions remain. The executive order calls for several actions to explore and evaluate a potential U.S. digital dollar, but there are already efforts underway by the Federal Reserve, including an open comment period on the agency’s CBDC report. How these efforts will affect one another remains unclear.

Furthermore, the stablecoin market continues to accelerate its growth. There is a sense of urgency building due to concerns about the financial stability risks caused by unregulated stablecoins with uncertain backing. Plus, stablecoins continue to support the growth of a shadow banking system populated with unregulated decentralized-finance programs. ICBA is urging policymakers to resolve regulatory and legal questions about digital assets and bring stablecoins within the regulatory perimeter.

What’s Next?

ICBA is working with community bankers to understand how the evolving digital assets economy will affect community banks, including through cross-functional groups that analyze potential regulatory paths for stablecoins.

This engagement will help inform ICBA advocacy as we continue working with policymakers on the future of digital assets policy. As the debate continues, ICBA will continue working to keep community bankers fully informed of the latest developments, including federal reports mandated by the EO.

Questions and concerns about the EO or digital assets in general may be directed to ICBA Vice President of Payments and Technology Policy Brian Laverdure at [email protected].