Biden's 'Digital Dollar': Could This Be the US' Answer to Bitcoin?
What the president's executive order means for the future of cryptocurrency.
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Could the US be on its way to creating its own "digital dollar" or cryptocurrency? The question has been on a lot of Americans' minds since President Joe Biden issued an executive order on digital assets. The March 9 order directed government agencies to investigate the risk that cryptocurrency poses to consumers, investors and financial markets, and to develop policy solutions to address those issues. Biden's order also called on the Treasury Department to look into creating a government-controlled digital currency.
This is the first time the government has formally addressed cryptocurrency -- a market now valued at approximately $1.7 trillion -- pointing both to the industry's growing influence and the Biden administration's awareness of its importance.
Here's what to know about Biden's executive order, including what it entails, why it was issued and what it could mean for cryptocurrency regulation.
What is the executive order on digital assets about?
The March 9 order, described as "the first whole-of-government strategy to protect consumers, financial stability, national security, and address [the] climate risks" of digital assets, focuses on six areas: consumer and investor protection, financial stability, illicit activity, US competitiveness, inclusion and accessibility, and responsible development.
It directs the departments of Treasury, Commerce and Justice, the Federal Reserve, the Office of Science and Technology Policy and other government agencies to research crypto's risks and rewards.
"The executive order should be thought of more as a call to action than as a specific game plan," writes Aaron Klein, an economist with the Brookings Institute. "Broadly speaking, the White House is seeking to strike the right balance from the positives of crypto -- financial efficiency, inclusion, American leadership in global finance -- with its negatives: potential illicit financing, consumer and business abuse, and regulatory arbitrage."
While Biden's order doesn't announce any new regulations, it hints they're likely on the way.
Will the US create its own cryptocurrency?
Biden tasked the Department of the Treasury with determining whether it would be feasible to issue a US-backed central banking digital currency, also known as a CBDC, similar to ones that China, Sweden, the EU and other governments are working on.
The Federal Reserve began its own four-month investigation into the possibility of a "digital dollar" back in January.
"It's just very hard for me to imagine that the US, given the status of the dollar as a dominant currency in international payments, wouldn't come to the table in that circumstance with a similar kind of an offering," Fed governor Lael Brainard told the National Association of Business Economics last year, The Wall Street Journal reported.
But many officials, Republican and Democrat, are ambivalent about a Fed digital dollar.
On the one hand, it could make it easier for the government to distribute financial aid to people who lack bank accounts. But, unlike cash, it could also allow the US central bank to see what citizens spent it on, raising privacy concerns.
Why did Biden issue the order?
Some 40 million American adults, or 16% of the population, have used, traded or invested in cryptocurrencies, according to the Pew Research Center.
The White House is eager to shore up oversight of something that involves such a large sector and, according to the order, "safeguard against any systemic financial risks posed by digital assets."
This is also a chance for the US to reinforce its foothold as the dominant economic world power. The order tasks the Department of Commerce with "establishing a framework to drive US competitiveness and leadership in and leveraging of digital asset technologies."
There are also concerns about the environmental impact of digital assets. To mine bitcoin, warehouses of high-power computers run 24 hours a day, consuming more energy in a year than all of Finland, The New York Times reported -- or nearly 0.5% of all electricity consumption worldwide, a tenfold increase from 2017.
Biden's order notes the substantial implications for "climate risk" and calls for the "responsible development, design, and implementation" of cryptocurrency.
Is the White House investigating crypto because of Russia?
While Biden insisted the directive has been in the works for months, it comes on the heels of the US and its allies issuing strict economic sanctions against Russia over the Ukraine invasion, including freezing assets of individuals and corporations.
The executive order calls for measures to mitigate the "illicit finance and national security risks" that bad actors could pose and directs agencies to work with America's allies "to ensure international frameworks, capabilities, and partnerships are aligned and responsive to risks."
How has the crypto industry reacted to the executive order?
In most industries, even vague regulatory talk is usually met with groans. But crypto traders responded overwhelmingly favorably to Biden's order. Coinbase's Chief Policy Officer Faryar Shirzad said he was optimistic about the directive.
"The White House seems to understand and embrace the transformational potential of digital asset technology, and the importance of maintaining American leadership," Shirzad tweeted.
Jake Chervinsky, head of policy for the Blockchain Association, said the order was "about as good as we could ask for."
"Anyone worried that President Biden's executive order would spell doom & gloom for crypto can fully relax now," Chervinsky posted on Twitter. "The main concern was that the EO might force rushed rulemaking or impose new and bad restrictions, but there's nothing like that here."
And Binance CEO Changpeng Zhao jokingly tweeted, "I'm guessing crypto is not going away."
Cryptocurrency markets surged in response to the executive order, with top-dog bitcoin rising nearly 9% last week to about $42,000. Ether, the second-largest cryptocurrency, hit nearly $2,800.
What's the next step?
Governmental agencies are now expected to commission studies over the next two to six months to explore the risks and benefits of cryptocurrency. Their recommendations may be adopted as departmental regulations or passed off to Congress to incorporate into new legislation.
Industry insiders will be watching closely, especially in regards to the development of a digital dollar.
"Adoption of US CBDC could fundamentally alter the role of both central and commercial banking," Lisa Ledbetter, a partner at corporate law firm Reed Smith and former Treasury Department attorney, told Yahoo Finance.
"Weighing all of the factors in the [executive order] is a policy and practical balancing act," Ledbetter added. "A US CBDC would have international consequences making it imperative that the private sector, foreign central banks and other stakeholders have a seat at the table."