On March 9, President Biden issued an Executive Order on Ensuring Responsible Development of Digital Assets.¹ Here are a few key takeaways to keep in mind:

• The order aims to secure the United States’ position as a leader in the rapidly growing blockchain and cryptocurrency industry while containing risks to consumers and the financial system itself.
• The long-awaited order pushes for a whole-of-government approach to cryptocurrency oversight and tasks various federal agencies with developing policy proposals on a range of topics including a potential U.S. central-bank issued digital currency and proposed regulatory guardrails to protect consumers and address climate change risks.
• The order may lead to much needed regulatory clarity with respect to various categories of digital assets, because the order requires the Secretary of the Treasury to analyze the particular features and risks of various types of digital assets and provide recommendations to address such risks.
• The order calls for federal agencies to report on illicit finance activities conducted using digital assets and on the risks posed to national security by criminal activity related to digital assets.
• Many have lauded the order, saying that it indicates that Washington is becoming more comfortable with cryptocurrencies and offers the promise of further regulatory clarity upon a careful evaluation of the risks and opportunities within the industry.

The order recognizes the extraordinary growth of the market for digital assets in recent years and the United States’ interest in being on the forefront of innovation in this space. The order emphasizes that the administration is interested in exploring the ways in which the administration can reinforce American leadership in the global financial system through digital asset technology. The order importantly acknowledges that such technology can promote responsible financial innovation, expand access to safe and affordable financial services for the unbanked and underbanked, and reduce the cost of domestic and cross-border funds transfers and payments. It is thus significant insofar as it signals that the United States will not seek to ban cryptocurrency technology categorically. To the contrary, the order recognizes the vast untapped potential of this technology and the need for the United States to take a leadership role as society moves toward mainstream adoption of this technology.

At the same time, the president recognized that this technology may pose risks to consumers, investors, and businesses in the absence of key regulatory guardrails. The order emphasized that the principal policy objectives of the administration are to protect consumers, investors, and businesses and mitigate the illicit finance and national security risks posed by misuse of this technology.

To that end, President Biden ordered various agencies and departments to address key issues relating to this technology and provide policy and regulatory recommendations before the end of the year. The order does not, notably, require any agency to adopt or implement specific rules or regulations at this time. Rather, it takes the more modest and cautious step of calling for a series of reports that will allow the administration to develop a whole-of-government approach to capitalizing on this technology while mitigating the risks posed in the absence of regulatory guardrails.

Specifically, the order calls for the following steps to be taken within 90, 180, or 210 days to:

• Explore a U.S. Central Bank Digital Currency (CBDC) by directing:
  • The secretary of the Treasury to submit a report on the future of money and payment systems including an analysis of the potential implications of a U.S. CBDC for (i) economic growth and stability, (ii) financial inclusion, (iii) national security, and (iv) financial crime, and the risk that a CBDC could displace existing currencies and undermine United States financial centrality. 
  • The attorney general to submit a report assessing whether legislative changes would be necessary to issue a U.S. CBDC, and to submit a legislative proposal based on consideration of the report submitted by the secretary of the Treasury on the potential implications of a U.S. CBDC.
  • The director of the Office of Science and Technology Policy and the chief technology officer of the United States to submit a technical evaluation of the technological infrastructure, capacity, and expertise necessary to facilitate and support the introduction of a CBDC system should one be proposed.
• Mitigate the illicit finance and national security risks posed by criminal activity related to digital assets by directing:
  • The attorney general to submit a report on the role of domestic law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets. The report must include recommendations on regulatory or legislative actions and on how to strengthen international law enforcement cooperation for detecting, investigating, and prosecuting such criminal activity.
• Protect U.S. consumers, investors, and businesses and U.S. and global financial stability while promoting U.S. leadership in technological innovation by directing:
  • The secretary of the Treasury to submit a report on the implications of developments and adoption of digital assets and changes in financial market and payment system infrastructures for U.S. consumers, investors, businesses, and for equitable economic growth. The order instructs the secretary to address conditions that would drive mass adoption of different types of digital assets and the risks and opportunities such growth might present to U.S. consumers, investors, and businesses. The order also directs the report to include policy recommendations, including potential regulatory and legislative actions to protect consumers, investors, and businesses and expand access to safe and affordable financial services. 
  • The secretary of the Treasury to submit a report outlining the specific financial stability risks and regulatory gaps posed by various types of digital assets, including the particular features of various types of digital assets, and providing recommendations to address such risks, including additional or adjusted regulation and supervision, as well as new legislation.
  • The secretary of Commerce to establish a framework for enhancing U.S. economic competitiveness in, and leveraging of, digital asset technology. 
• Ensure responsible development and use of digital assets as it relates to climate change by directing:
  • The director of the Office of Science and Technology to submit a report 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.

This order marks a promising next step in moving toward regulatory clarity for U.S. businesses, which will allow for increased innovation and participation in this burgeoning industry.