Abstract: Recent Executive Order published by the White House sets forth the first comprehensive digital assets strategy of the U.S. government and adopts the “whole-of-government approach” to create the new U.S. financial system including the digital assets.  

Keywords: executive order, digital asset, cryptocurrency, central bank digital currency, decentralized finance.

As governments’ position towards crypto assets evolves, crypto will hold its seat at the top of our agenda at least for the near future. Despite China's prohibition on cryptocurrency and a similar prospective approach presented by India raised questions regarding the future of crypto, the U.S. government has avoided such a straight attitude until today. Accordingly, Joe Biden has recently issued an Executive Order on Ensuring Responsible Development of Digital Assets on March 9, 2022 (the “Executive Order”), and this Executive Order enhanced the foresight that the U.S. government will adopt a forward-leaning position for the crypto assets, which might be recognized by money institutions, and used as an international payment instrument in the future. In this article, we will examine details of the Executive Order to understand the U.S. government’s path for the “responsible” development of digital assets.

First of all, the scope of “digital assets” is defined in the Executive Order as “representations of value, financial assets and instruments or claims that are used to make payments or investments or to transmit or exchange funds or the equivalent thereof”. Accordingly, the Executive Order addresses the types of fintech business models and other consumer businesses that involve platforms for consumer transactions, especially for NFTs. (1)

The Executive Order does not introduce any regulation or obligation for the actors operating in the digital asset market yet; instead, it mainly involves orders for state organs to take several actions, including preparing reports and/or proposals regarding the issues envisaged thereof. However, prior to enactment of regulations that will burden obligations to the stakeholders in the ecosystem, a short-term scrutiny is expected following this Executive Order. (2)

The Executive Order qualifies digital development that the U.S. seeks to pursue for crypto assets as "responsible". In other words, the core value of U.S. government’s approach seems to be chosen as "responsibility". From the very beginning of the Executive Order, it is understood that responsibility is built on the rule of law, protection of consumers, investors, and businesses, financial stability, transparency, security, privacy and environmental policy on general terms.

So, here are 9 outcomes we analyzed from the Executive Order, which may be considered as the key elements of this call:

1. The U.S. is well-aware of the fact that volume of the market capitalization and the market participation in terms of digital assets have advanced massively in the last five years.
2. Consequently, the U.S. aims to maintain its leadership in economic control mechanisms and wants to be the one who shapes the new financial system, including the digital assets.
3. Nevertheless, the U.S. recognizes the fact that efficiency in digital assets can only be achieved if the interoperability of these assets is obtained. Therefore, the U.S. government encourages to explore ways and means of international cooperation regarding the issue. Otherwise, asymmetric regulation, supervision, and compliance across jurisdictions would create arbitrage and increase the risks against financial stability and protection of the stakeholders. 
4. Three dimensions of being responsible is recapped in the Executive Order: responsible in development, design, and implementation.
5. Indeed, the U.S. is willing to participate in development of the digital assets on a global scale, but would like to frame this approach in a responsible way. Throughout the Executive Order, responsible ways for such development are outlined within the scope of consumer, investor, and business protection, financial stability in the U.S. and all around the world, mitigation of systemic risks, illicit finance and national security risks.  
6. The U.S. seeks to combine the power of digital assets with the green transformation to enhance its policies on combatting climate change. For example, it is offered to exchange liabilities for greenhouse gas emissions, water and other natural or environmental assets to minimize digital assets’ impacts on the climate. 
7. The U.S. is willing to shape digital assets as a medium for affordable and safe financial services, economic and technological advancement, and the environment, but not for illicit finance, or money laundering in whatsoever way. 
8. The U.S. government has not adopted the approach to establish a separate entity which will monitor, supervise and regulate digital asset markets, as Dubai has proceeded with recently. Instead, the U.S. designed a task force that involves participation of various agencies across the states to combat the downs of the crypto while letting its ups shine. That's why it can be summarized as the Executive Order calls for “communication-is-the-key” approach. This interagency strategy seems legitimate, considering the nature of this issue is related to many sectors.
9. The U.S. government is also eager to explore the possibility of designing and deployment of the U.S. Central Bank Digital Currency (the "CBDC"), and therefore requires conducting “urgent” research and development projects in this regard. Through the Executive Order, the government has adopted a position more positive than the Federal Reserve, which recently released a report on the matter, but took no position on the ultimate desirability of the national CBDC. Until now, more than 100 countries have initiated R&D activities on the deployment of a national CBDC. Therefore, the U.S. government takes a step ahead to pursue its leadership in the worldwide economy in line with its national interests and democratic values, considering the CBDC may promote greater access to financial systems with lower costs and financial risks, even in cross border transfers.   

Conclusion

The Executive Order has revealed general stance of the U.S. government towards digital assets and stipulated general principles to be followed by the state organs along the way. Even the final position of the U.S. government is not solid, the government is aware why such technologies and digital assets need to be explored to keep the innovations developing and mitigate the risks they may cause. 

In case foregoing principles will be overlooked while drawing framework of the prospective regulations, there is no doubt the objectives listed in the Executive Order, such as protecting stakeholders, privacy, security, and mitigating financial stability, cannot be reached and may affect the whole future of crypto adversely.

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1. Brown, A./ Tank, M. H. K./Ord, I./Schottenstein, N.: “President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets: Consumer Protection Implications and 3 Steps”, March 11, 2022, accessed via https://www.dlapiper.com/en/us/insights/publications/2022/03/president-bidens-executive-order-on-ensuring-responsible-development-of-digital-assets/ on March 15, 2022.
2. Brown/Tank/Ord/Schottenstein, accessed via https://www.dlapiper.com/en/us/insights/publications/2022/03/president-bidens-executive-order-on-ensuring-responsible-development-of-digital-assets/ on March 15, 2022.