The U.S. government cannot afford to remain on the sidelines of the increasingly hot debate over digital currencies. In fact, America should find ways to make itself a hub for digital currencies. Other nations will fill the void if the U.S. fails to act quickly.
Crypto is in the news and for good reason. It is playing an increasingly significant role in global finance. The financial services industry is shifting thanks to emerging technologies at the heart of the crypto currency boom.
Some people—even top financial experts—are skeptical. But that’s always the way new approaches to old ideas are greeted. When email technology emerged, it had plenty of doubters. Yet it fundamentally transformed communication. Cryptocurrency could well have a similar revolutionary impact.
So far, the U.S. government is behind the curve. American leaders are still debating whether crypto currency is a security or a commodity. But those are yesterday’s concerns.
Other countries aren’t waiting to create a crypto friendly environment. China is developing a central bank for digital currency. El Salvador is adopting Bitcoin as legal tender. Other nations are leaping ahead to define rules for crypto. The U.S. should, too.
In a sign of progress, President Biden recently signed an Executive Order (EO) that outlines several priorities for regulating digital assets including protection for consumers, investors, and businesses. The EO takes a whole-of-government approach to addressing the potential benefits and risks of digital assets.
It focuses on six core policy priorities for the administration: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. The order tasks twenty-four government departments, agencies, and interagency policymaking bodies with implementing the order, largely through mandated studies, reports and coordination.
Now it’s time for Congress to act.
Congress would be unwise to approve a digital dollar supported by the Federal Reserve. That could lead to the Federal Reserve becoming a government lending bank, which would risk financial privacy and freedom. Instead, private issuers should be able to continue to issue “stablecoins” backed 1-to-1 by the U.S. dollar.
Indeed, U.S. financial regulators, through public statements and rulemaking, should encourage a friendly environment for private companies to operate within our borders that embrace a transition to cryptocurrency. This should include regulations for digital wallets that are safe and secure and that prevent bad actors from accessing them, with navigable anti-money laundering rules, and an interoperable system across exchanges.
There are several broad concepts that Congress should codify. It must make clear exactly what crypto is – and isn’t – as an asset class. It should also ask for regulations that define the role of broker-dealers and establish fair tax standards. Stablecoins issuance should not be limited to being treated as insured depositories. Congress should do nothing to impede innovation or prevent access to new technologies.
The role of cash is declining across the globe, especially in China, as institutions adopt new technologies. In short, crypto has arrived and individuals and companies are adopting it. It is time to move beyond analysis paralysis and act.
Congress and the administration should recognize that they can’t stop the global innovation and adoption of crypto. The government should encourage the private sector to create models that can be weaved into the U.S. financial regulatory structure. The U.S. government needs to work with crypto companies to tailor legislation and regulations to lawfully offer what are now widely called stablecoins.
This is a moment for clarity and certainty. It’s time for policymakers to stop fretting and to lead. The U.S. government needs to get in the crypto game before innovation and opportunity go elsewhere.
Sean Duffy is a former U.S. congressman from Wisconsin and co-head of BGR Group’s Financial Services Practice. Originally published by RealClearPolitics. Republished with permission.