When US President Joe Biden issued Executive Order 14067 “Ensuring the Responsible Development of Digital Assets,” he ordered more than a dozen reports. Five had expiration dates within 90 days, and the last three were published simultaneously by the Treasury on September 16. The reports are prepared in accordance with the guidelines in Sections 4, 5 and 7 of the EEO.
The report mandated by Section 4 of the EO is entitled “The Future of Money and Payments”. The report looks at the many payment systems currently in use that are managed by the Federal Reserve or the Clearing House, which is owned by a group of major banks. These will be complemented by the blockchain-less FedNow service, an instant payment system expected to launch in 2023.
Stablecoins are featured with FedNow under the heading “The Latest Innovations in Money and Payments.” They are also discussed in some detail, examining deficiencies in the security and anti-money laundering/countering the financing of terrorism (AML/CFT) capabilities.
“Financial institutions operating in stablecoins are subject to AML/CFT obligations. However, if stablecoins are adopted globally as a payment method, stablecoins may pose a significant risk to illicit finance due to the uneven implementation of AML/CFT standards for digital assets.”
The bulk of the report is for Central Bank Digital Currency (CBCC). Although the report addresses issues such as interest payments on CBCCs, the cost of running CBCCs and public-private partnerships, the discussion focuses on risks.
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The interoperability and privacy protection of CBDCs are implicitly considered:
“While physical cash enables anonymous transactions, CBCC can be used at higher volumes and speeds. […] Therefore, anonymity in a CBCC system may present more widespread money laundering, proliferation financing, and terrorist financing risks compared to physical cash. […] A CBCC can offer important new opportunities for improved oversight and AML/CFT compliance.
The report concludes by recommending that CBCC research continue “if one is determined to be in the national interest.” In addition, fast payment technology should be encouraged to improve the payment landscape. A regulatory framework should be established, and cross-border payments should be prioritized.