The White House General Framework on Digital Assets: A Quick Breakdown

The “First-Ever Comprehensive Framework for Responsible Development of Digital Assets,” which encompasses a joint fact sheet on six key directives formulated by federal agencies for cryptocurrency regulations in the nation, has been released by the American government. The framework pertains to an executive order the president issued in March calling for several U.S. government entities to develop a trajectory on cryptocurrencies and present their findings. Thus, it summarizes the content of nine separate reports submitted to the president to articulate a comprehensive framework for developing effective digital assets that would enable U.S. firms to get a footing in regional and international markets.

Similar to the executive order, the “Comprehensive Framework” does not establish any new legislation but offers a clearer picture of U.S. cryptocurrency regulation. Nonetheless, the current regulators, like the Securities and Exchange Commission and the Commodity Futures Trading Commission, are harnessed for resilience by the new directives. They have been encouraged to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.”

The fact sheet, which was published on the official website of the White House on September 16, 2022, is categorized into seven sections: (1) Protecting Consumers, Investors, and Businesses; (2) Promoting Access to Safe, Affordable Financial Services; (3) Fostering Financial Stability; (4) Advancing Responsible Innovation; (5) Reinforcing Our Global Financial Leadership and Competitiveness; (6) Fighting Illicit Finance; and (7) Exploring a U.S. Central Bank Digital Currency (CBDC).

Although the framework is extensive, it does not address the cryptocurrency market’s fundamental question, as reinforced by CoinDesk—what exactly qualifies a crypto token as a security, and which should be subject to commodity regulation? Here are some of the significant points in Biden’s framework, which does examine the central bank’s digital currency to cryptocurrency innovation.

Firstly, it is essential to recognize that the division of regulatory responsibilities has not been done because the government wants to consider the entire spectrum. Digital assets “offer significant opportunities to reinforce US leadership in the global financial system and remain at the technological forefront,” according to the Biden Administration. This statement only highlights how challenging it is to change the perspectives of some elected officials and other decision-makers who have a clear animus toward the developing digital asset ecosystem.

Safeguarding Individuals and Companies

The framework considered the rising annual financial losses from digital assets, preparing to take action against the cryptocurrency market’s high volatility, noting a 2018 Wall Street Journal article regarding disclosure and transparency issues with offerings of digital assets.

These strategies include strengthening efforts to monitor complaints, conducting investigations and enforcement against illegal actions “aggressively,” and providing assistance to deal with current and emerging risks. To ensure that each agency’s initiatives are as successful as possible, they will be urged to share their data on consumer complaints involving digital assets.

Finally, to foster more rational decisions and investments in cryptocurrencies, the Financial Literacy Education Commission (‘FLEC’) will raise public knowledge of the risks associated with digital assets and how to mitigate them.

Combating Illicit Finance

The escalating unlawful activities occurring in the industry are highlighted in the White House’s new framework. The measures suggested to halt them seem to have an effective force of power.

The administration enforces stringent security measures, amending the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmission to explicitly apply to companies that provide services for digital assets, including exchanges and platforms for nonfungible tokens. The government intends to monitor the progress of cryptocurrencies, examine them, and make any necessary adjustments. The president has urged Congress to raise the penalties for unauthorized money transmission and to amend specific federal legislation such that the Department of Justice may pursue cases involving digital assets in any jurisdiction where a victim of those crimes is discovered.

Additionally, Biden directed the Treasury to complete an assessment of the decentralized financial sector concerning illicit finance by the end of February 2023 and an evaluation of NFTs by July 2023.

Ensuring Financial Stability

The framework makes mention of stablecoins’ potential for instability and warns that, without the right regulation, they might lead to disruptive runs.

The White House fact sheet states, “Digital assets and the mainstream financial system are becoming increasingly intertwined, creating channels for the turmoil to have spillover effects.” The Treasury will coordinate with agencies to analyze new strategic risks, the administration said, and engage with financial institutions to optimize their ability to evaluate and address cybervulnerabilities.

These initiatives will also be coordinated with international allies, such as the Financial Stability Board and the Organization for Economic Cooperation and Development (‘OECD’).

The Financial Stability Oversight Council (FSOC) is anticipated to release a study in October that examines the risks to financial stability posed by digital assets and identifies any corresponding regulatory gaps.

Exploring a U.S. Central Bank Digital Currency

The framework asserts that the digital currency issued by the U.S. central bank (CBDC) “may enable a payment system that is more efficient, offers a foundation for further technical innovation, facilitates speedier cross-border transactions, and is ecologically friendly.” According to the White House, an official digital currency could increase financial inclusion, protect from cyber vulnerabilities, and reduce the risks associated with illicit financial transactions.

It should be noted that there are various forms of digital US dollars, ranging from the electronic US dollars found in commercial institutions to the abundance of stablecoins that are pegged to the USD. The Federal Reserve’s version of a CBDC is the hypothetical digital dollar. It is essentially the digital equivalent of the U.S. Dollar, fully regulated by a central authority and supported by the nation’s central bank.

The report continues, “It could promote financial inclusion and equity by enabling access for a broad set of consumers.” The framework outlines the government’s policy objectives for a U.S. CBDC system, but the administration has urged the Federal to continue its current analysis, trial, and evaluation of a CBDC.
“To support the Federal Reserve’s efforts and to advance other work on a potential U.S. CBDC, the Treasury will lead an interagency working group to consider the potential implications of a U.S. CBDC, leverage cross-government technical expertise, and share information with partners,” the framework concluded.

Although this framework underscores the U.S.’s current understanding of cryptocurrencies, it does acknowledge their advantages and calls on federal agencies to take the necessary measures to incorporate them. It is an excellent approach to start along the trail of making digital assets more accessible to American citizens and how government bodies can ensure their practical utility and reliability.


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