While it is critical to consider the ways in which a CBDC could introduce risks relative to the current payments system, it may increase resilience relative to a payments system where private money is prominent. Cryptocurrencies designed to serve as money and payments systems have continued to struggle in their quest for adoption as an everyday medium of exchange. Their main benefit to this point—at least for early adopters—has been as a long-term store of value. But their exchange rate volatility makes them highly unsuitable as domestic payment instruments, given that prices and debt contracts are denominated in units of domestic currency. While year-over-year returns can be extraordinary, it is not uncommon for a cryptocurrency to lose most of its value over a relatively short period of time.
It serves as the bedrock that enables users of a general-purpose CBDC and the market more broadly to be confident that the instrument they use to transfer value is robust and reliable, functions smoothly and securely, and comes with clear rules and protections for the payment recipient and for the consumer. Critical first steps toward building such a sound legal framework include formulating a clear position on the legal issues highlighted below. The order created a working group, chaired by Trump’s czar for crypto and AI (venture capitalist David Sacks) and composed of various Cabinet officials, the heads of the Securities and Exchange Commission and Commodity Futures Trading Commission and other White House officials. Though the order does not itself establish a strategic bitcoin reserve, it does direct the working group to “evaluate the potential creation and maintenance of a national digital asset stockpile.”
Could the problem be that government authorities have insufficient information regarding the financial transactions of U.S. citizens? In general, the government has sought to balance individuals’ right to privacy with the need to prevent illicit financial transactions, such as money laundering. For example, while the government does not receive all transaction data regarding accountholders at commercial banks, the Bank Secrecy Act requires that commercial banks report suspicious activity to the government. Please note that I am not endorsing any particular stablecoin—some of which are not backed by safe and liquid assets.
Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space. (d) The Chair shall designate an Executive Director of the Working Group, who shall be responsible for coordinating its day-to-day functions. On issues affecting the national security, the Working Group shall consult with the National Security Council. (b) The Secretary of the Treasury is directed to immediately revoke the Department of the Treasury’s “Framework for International Engagement on Digital Assets,” issued on July 7, 2022. In a smart contract, the entire agreement is specified as part of the computer program and is stored on a blockchain.
Certainly, new cryptocurrency technologies make the entrance of the central bank to the market of retail digital payment a real possibility. A widely available CBDC would serve as a close—or, in the case of an interest-bearing CBDC, near-perfect—substitute for commercial bank money. A shift away from these other low-risk assets could reduce credit availability or raise credit costs for businesses and governments. Interbank payment systems may initially settle in commercial bank money, or in central bank money, depending on their design. However, because central bank money has no credit or liquidity risk, central bank payment systems tend to underpin interbank payments and serve as the backbone of the broader payment system. The use of central bank money to settle interbank payments promotes financial stability because it eliminates credit and liquidity risk in systemically important payment systems.
The PWG report also notes, however, that the potential for the increased use of stablecoins as a means of payment raises a range of concerns related to the potential for destabilizing runs, disruptions in the payment system, and concentration of economic power. The PWG report highlights gaps in the authority of regulators to reduce these risks. The executive order also ensures “fair and open access” to law-abiding citizens and entities in the crypto space. In 2022, the SEC introduced Staff Accounting Bulletin No. 121 (SAB 121), a rule that required banks and financial institutions to record their crypto holdings as a liability on their balance sheet. The measure, which prevented banks from holding crypto assets, was rescinded in the first week of the Trump administration. The Federal Reserve Board’s discussion paper (PDF), released in January 2022, examines the pros and cons of a potential U.S.
Within six months, the working group will recommend regulatory and legislative proposals for Trump to consider. (xii) As appropriate and consistent with applicable law, the Chair may invite the heads of other executive departments and agencies (agencies), or other senior officials within the Executive Office of the President, to attend meetings of the Working Group, based on the relevance of their expertise and responsibilities. That is, buyers and sellers may not find adequate counterparties, and individual transactions may affect prices too much.
