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The Biden‐​Cryptocurrency Reports: Part 5, The Future of Money and Payments

Nicholas Anthony

The reports mandated by President Biden’s March executive order are here and seek to offer a comprehensive framework for the responsible development of digital assets (commonly known as cryptocurrencies). As noted early after the release, however, many of the items were left to be determined. But that doesn’t mean that the reports should be ignored. This series of blog posts will tease out some of the subtler points from each of the reports released on Friday.

Recommendations from the U.S. Department of the Treasury

The fifth report, “The Future of Money and Payments,” came from the U.S. Department of the Treasury. And as the name suggests, the Treasury was tasked with considering the future of the U.S. dollar, the forms it might take, and how the payments system can be improved (Section 4(b)(iii) of Executive Order 14067). To that end, the report offered the following four recommendations:

  1. Advance work on a possible U.S. CBDC, in case one is determined to be in the national interest.
  2. Encourage the use of instant payment systems to support a more competitive, efficient, and inclusive U.S. payment landscape.
  3. Establish a federal framework for payments regulation to protect users and the financial system, while supporting responsible innovations in payments.
  4. Prioritize efforts to improve cross‐​border payments, both to enhance payments system efficiency and protect national security.

Let’s consider some of these recommendations in more detail.

To defend its position on CBDCs, the Treasury claimed that a CBDC could lead to a payments system that is efficient, fosters innovation, facilitates cross‐​border transactions, and is environmentally sustainable. In addition, the Treasury claimed that a CBDC could promote financial inclusion, foster economic growth, protect against cyber risks, support individual rights, combat illicit activity, support sanctions, and preserve U.S. leadership. To say this list is overly optimistic is an understatement. In fact, it may be the single longest list of benefits any CBDC proponent has offered. Not only is a CBDC designed to do everything unlikely to do anything particularly well, but also most proponents agree that the limited benefits a CBDC could offer are directly tied to specific designs.

The Treasury did acknowledge that a CBDC could spur bank runs, disrupt the banking system, and reduce the availability of credit in U.S. markets. In fact, the Treasury even noted that it’s unlikely for a U.S. CBDC to be improved at the same rate as cryptocurrencies. However, the Treasury seemed to largely ignore the other concerns of the public. It’s hard to rationalize how the Treasury could make only a passing mention of the risks to both financial privacy and financial freedom that a CBDC could pose within the recommendation.

The encouragement for instant payment systems similarly felt out of touch. The Treasury itself cited the Real‐​Time Payments Network and the FedNow network—networks specifically designed to improve payments speeds—earlier in the report, but it made no mention of them during the recommendation to encourage faster payments. It’s unclear, to say the least, what the Treasury had in mind with this recommendation.

Turning to the Treasury’s idea for a federal regulatory framework, it’s good to see the Treasury acknowledge the difficulty that fintech companies must endure—namely, the difficulty in navigating a different regulatory framework for every state they operate in. The two keys to this puzzle will likely be (1) not creating an overzealous federal regulatory path that simply aggregates the regulations of the states and (2) working to keep that path flexible as the fintech space undoubtedly continues to innovate and evolve.

Finally, the recommendation to prioritize improvements to cross‐​border payments is a good note to end on. As stated by the Treasury: “Private sector payment innovations have been driven in part by inefficiencies in the current cross‐​border payment systems.” Rather than scale back the regulations that have driven those inefficiencies, however, the Treasury called for working with other countries to “align regulatory, supervisory, and oversight frameworks.” Considering cryptocurrency innovation has improved the payment sector for so many people, the Treasury should use this opportunity to think about how reducing—not expanding—regulations could foster more innovation.

A Few Other Notes on the Report

Although senior officials at both the Federal Reserve and Securities and Exchange Commission (SEC) have often wrongly referred to the so‐​called “wildcat banks” of the past, the Treasury avoided the temptation (except for one footnote). Yet, it also didn’t offer a particularly deep analysis of the history of money. That deeper analysis would have been helpful in identifying how market innovations have been improving money long before cryptocurrencies came in the conversation.

To be fair, the report’s core focus was on what the Treasury has in mind for the future. And with CBDCs, the Treasury imagined endless possibilities. The word “could” appeared 72 times across the section. Although it is helpful to know the full range of possibilities, its time for agencies to start staking their positions on specific designs if they are going to continue to advocate the adoption of a CBDC in the United States. To the extent that any features are possible directly depends on the design of the CBDC and few designs excel in offering any more than a few features.

Are you ready to learn about the next report? Click the links below to jump to another report.

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