The President of the United States, Joe Biden, ordered the writing of more than a dozen reports when he published his Executive Order (EO) 14067 “Ensuring the responsible development of digital assets”. Five had a 90-day delivery date, and the last three were released simultaneously by the Treasury Department on September 16. The reports were prepared in response to the instructions in sections 4, 5 and 7 of the EO.
The report commissioned in section 4 of the OE is entitled “The future of money and payments”. The report examines the various payment systems currently in use that are operated by the Federal Reserve or the Clearing House, which is owned by a group of large banks. These will be complemented by the non-blockchain-based instant payment system FedNow Service, which is expected to go live in 2023.
The stablecoins are presented together with FedNow under the title “Recent Innovations in Money and Payments”. They are the subject of a somewhat brief debate in which the possible deficits in reliability and capacity to combat money laundering and the financing of terrorism (AML/CFT) are examined, on which it is concluded:
“Financial institutions that deal in stablecoins are subject to AML/CFT obligations. However, if a stablecoin were to become widely adopted globally as a means of payment, the stablecoin could pose greater risks for illicit financing due to the uneven application of global AML/CFT rules for digital assets”.
The bulk of the report is devoted to the central bank digital currency (CBDC). Although the report raises issues such as the interest payment of a CBDC, the cost of running a CBDC, and public-private partnerships, the discussion largely focuses on risks.
The interaction of CBDCs and the protection of privacy is the subject of subtle consideration:
“While physical cash can enable anonymous transactions, a CBDC could be used at much greater scale and speed. […] Therefore, anonymity in a CBDC system could present much broader money laundering, proliferation financing, and terrorist financing risks compared to physical cash. […] A CBDC could also offer valuable new opportunities to improve AML/CFT supervision and enforcement.”
The report concludes with the recommendation that the investigation of a CBDC be continued “in the event that it is determined to be in the national interest.” In addition, instant payment technology should be encouraged to improve the payment landscape. A regulatory framework must be established and priority given to cross-border payments.
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