Biden Takes Step Toward Regulating Cryptocurrencies

WASHINGTON — President Biden signed an executive order on Wednesday directing the federal government to come up with a plan to regulate cryptocurrencies, recognizing their popularity and potential to destabilize traditional finance.

The order, under development for months, will coordinate efforts among financial regulators to better understand the risks and opportunities presented by digital assets, particularly in the areas of consumer protection, national security and illicit finance.

The move, according to the Biden administration, is a response to the “explosive growth” in digital assets, the increasing number of countries exploring central bank digital currencies and a desire to maintain American technological leadership. It directs financial regulators to continue with work that began in earnest last year, including studying and reporting on the creation of a digital dollar.

The results could help shape the contours of a rapidly innovating industry that has swiftly moved into the mainstream but that critics say enables illicit activity, including money laundering, and creates outsize financial risks for consumers and the financial system.

Brian Deese, the director of the National Economic Council, and Jake Sullivan, the president’s national security adviser, said in a statement that the order “will help position the U.S. to keep playing a leading role in the innovation and governance of the digital assets ecosystem at home and abroad, in a way that protects consumers, is consistent with our democratic values and advances U.S. global competitiveness.”

The directive calls on the government to assess the potential to develop a central bank digital currency — essentially a digital dollar — that would be used to modernize payment systems.

Central banks from the Bahamas to Sweden to China are experimenting with digital currency offerings, fueling concerns among lawmakers that the Federal Reserve might fall behind the competition.

In January, the Fed released a long-awaited report on central bank digital currencies, which it said was intended to generate debate. On Wednesday, after news of the executive order, the Fed’s official Twitter account noted that it had “made no decisions on whether to pursue or implement a central bank digital currency” and invited the public to continue commenting on issues raised by its report.

Some, including the Fed chair, Jerome H. Powell, have argued that a U.S. digital dollar could eliminate the need for privately issued stablecoins — digital currencies that promise to maintain their value by relying on stable financial backing like bank reserves and short-term debt. Private issuers resist that contention and have argued that they can coexist with a central digital currency, should one be developed.

Administration officials, who detailed the digital currency portion of the order for reporters on Wednesday, said the Fed’s earlier report provided a strong foundation but did not attempt to resolve some of the trickier issues surrounding a digital dollar, including its design and issuance.

Treasury Department officials will now embark on a much more extensive examination of the digital dollar…