The adoption of cryptocurrencies is becoming more widespread over time. Now even major sporting events are sponsored by companies such as crypto.com. The more this trend increases, the more regulators rush to take action. Thus, SEC Chairman Gary Gensler said that cryptocurrencies could be subject to federal securities regulation. Now, the Biden administration is defining a regulatory framework that outlines the major guidelines to come.
A potential Digital Dollar under study
President Biden has asked federal agencies to examine the balance between risks and benefits of cryptocurrencies. The objective is then to obtain conclusions which will serve as a working basis for the legislator. The regulatory framework released by the White House is a response to these findings. So far, the US position on central bank digital currencies (CBDCs) has not been explicit. With this recent release, the Biden administration seems ready to take a step closer to a national digital currency.
The Federal Reserve continues to research, experiment, and evaluate digital dollar bonds. Such an initiative could enable a more efficient payment system and provide a basis for new technological innovations. The project could facilitate faster cross-border transactions and would be environmentally sustainable (recent example with the Merge of the Ethereum blockchain). However, political issues persist regarding such adoption. Consideration of the national interest is a sine qua non for the creation of a digital dollar.
CBDCs: A potential threat to stablecoins
The Chairman of the Federal Reserve has previously said that the main incentive for the United States to launch its own CBDC would be to eliminate the use of cryptos. Jerome Powell added that there would therefore no longer be a need for stablecoins or cryptocurrencies. Stablecoins found themselves on the radar of UST crash regulators of the Terra ecosystem. The framework points out that if said asset class is not regulated, it could prove problematic for investors.
The text indicates that digital assets and the traditional financial system are increasingly correlated. Therefore, volatility could have a snowball effect with a significant impact on investors’ capital. To make stablecoins more secure, the U.S. Government wants to work with financial institutions to build their ability to identify and mitigate cyber vulnerabilities by sharing information and promoting a wide range of datasets and analytical tools. .
CBDCs: A brake on illicit activities?
In addition to curbing the adoption of stablecoins, the stated objective of the White House is that of currency control. For example, money laundering through cryptocurrencies would no longer be possible. According to one section of the regulatory framework, the President will consider whether to, among other things, ask Congress to amend the Bank Secrecy Act and the laws against unlicensed money transfer so that they explicitly apply. digital asset service providers – including digital asset and non-fungible token (NFT) exchanges.
In terms of what happens next, it says that an illicit finance risk assessment on decentralized finance will be finalized by the end of February 2023 and an assessment on NFTs by July 2023.
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