The Biden administration released a broad framework for “responsible development of digital assets” on Friday that could have far-ranging impact on the financial sector and crypto markets.
A fact sheet released by the White House details six months of work by nine different federal agencies, including the Federal Reserve’s ongoing work evaluating the benefits and risks of a US Central Bank Digital Currency.
There is also a call for “commonsense efficiency standards for cryptocurrency mining” and for federal agencies to promote innovation by kickstarting private sector research. None of the steps envision new legislation, at least so far, but there is a call for the National Science Foundation to back research in tech disciplines to ensure digital asset ecosystems are equitable for all.
More specifically, the administration plans for the Office of Science and Technology Policy and NSF to kickstart basic research on next-gen cryptography, cybersecurity and privacy protections and find ways to mitigate environmental impacts of digital assets.
Gigantic server farms that process crypto transactions use enormous amounts of energy, for example, as Fierce Electronics has reported.
RELATED: Can cryptocurrency become more environmentally friendly?
The US Department of Energy is also tasked in the framework with tracking digital assets’ environmental impacts, developing performance standards and providing local authorities with tools and expertise to combat environmental harms. “Powering crypto-assets can take a large amount of energy—which can emit greenhouse gases, strain electricity grids and harm some local communities with noise and water pollution,” the White House fact sheet notes.
One area of potential legislation in the framework calls for an evaluation by the Biden administration of amendments to the Bank Secrecy Act anti-tip-off statutes and laws against unlicensed money transmitting to explicitly apply to digital asset service providers, including exchanges and NFT platforms.
A far-reaching concept of a Central Bank Digital Currency (CBDC), a digital form of the US dollar, offers significant benefits, the framework said, such as greater efficiency and environmental sustainability. “It could foster economic growth and stability, protect against cyber and operational risks and safeguard the privacy of sensitive data and minimize risks of illicit financial transactions,” the framework says. “A potential US CBDC could also help preserve US global financial leadership…”
The downside? “A CBDC could have unintended consequences, including runs to CBDC in times of stress.”
The Biden framework calls on the US Treasury to support the Federal Reserve’s work on CBDC by leading an interagency working group to weigh implications of the new currency. The Office of Science and Technology Policy would be involved, alongside the National Security Council and National Economic Council.