President Trump signs Executive Order on Digital Assets entitled “Strengthening American Leadership in Digital Financial Technology” | Perspectives

Introduction and Background

On January 23, President Trump issued an Executive Order entitled “Strengthening American Leadership in Digital Financial Technology” (the “Order”). The Order indicates that it is the policy of the Trump Administration to “support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy”.  It goes on to enumerate the Administration’s policies and procedures around digital assets, which include promoting “legitimate dollar-backed stablecoins worldwide” and banning the issuing or promotion of any CBDC.

The Order outlines key policy goals, including: (i) protecting and promoting individuals’ and entities’ access to public blockchain networks “without persecution”, (ii) protecting the sovereignty of the United States dollar, including through developing and promoting United States dollar-backed stablecoins, (iii) ensuring fair access to banking services, (iv) safeguarding against the risks of CBDCs, and (v) providing regulatory clarity with technology-neutral regulations.

President‘s Working Group on Digital Asset Markets

In addition to setting out its policies, the Order establishes the “President’s Working Group on Digital Asset Markets.” The Working Group is to be chaired by the Special Advisor for AI and Crypto, and will include the following members:

• the Secretary of the Treasury;
• the Attorney General;
• the Secretary of Commerce;
• the Secretary of Homeland Security;
• the Director of the Office of Management and Budget;
• the Assistant to the President for National Security Affairs;
• the Assistant to the President for National Economic Policy (APEP);
• the Assistant to the President for Science and Technology;
• the Homeland Security Advisor;
• the Chairman of the Securities and Exchange Commission; and
• the Chairman of the Commodity Futures Trading Commission.

The heads of the banking regulators (the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and most notably the Board of Governors of the Federal Reserve (FRB) are absent from the list of members of the Working Group.

Timeline and Working Group Report

The Order establishes a timeline for developing the Trump Administration’s vision for crypto policy:

• Within 30 days of the Order, all relevant agencies included in the Working Group are required to identify all regulations, guidance documents, orders, or other items that affect the digital asset sector.
• Within 60 days of the Order, each agency is required to submit to the Chair recommendations with respect to whether each identified regulation, guidance document, order, or other item should be rescinded or modified, or, for items other than regulations, adopted in a regulation.
• Within 180 days of the Order, the Working Group is required to submit a report to the President (the “Working Group Report”), through the Assistant to the President for National Economic Policy, with recommendations for regulatory and legislative proposals that advance the policies in the Order.

The Working Group Report is required to focus on the following priorities:

• A proposal for a federal regulatory framework governing the issuance and operation of digital assets, including stablecoins, in the United States, focusing on market structure, oversight, consumer protection, and risk management.
• An evaluation of the potential creation and maintenance of a national digital asset stockpile and propose criteria for establishing such a stockpile, potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts.
• The Chair shall designate an Executive Director of the Working Group, who shall be responsible for coordinating its day-to-day functions. On issues affecting the national security, the Working Group shall consult with the National Security Council.
• As appropriate and consistent with law, the Working Group shall hold public hearings and receive individual expertise from leaders in digital assets and digital markets.

Ban on Central Bank Digital Currencies

As mentioned above, the Order takes specific aim at CBDCs, noting the Administration’s policy as “taking measures to protect Americans from the risks of Central Bank Digital Currencies (CBDCs), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States.” It includes an explicit ban on any government agency establishing, promoting or issuing CBDCs either in the United States or abroad. CBDCs are digital versions of a country’s official currency, issued and regulated by a central bank. The concerns set out in the Order appear to stem from potential government interference and privacy because of the traceability of transactions on the blockchain as well as the centralized nature of CBDCs allowing governments to potentially overreach in their powers over assets. A host of central banks are in the pilot stage of CBDC exploration (including Australia, India, Japan and Brazil), and several other central banks have rolled out CBDCs, including the Central Bank of The Bahamas (the Sand Dollar), the Central Bank of Nigeria (e-Naira) , the Bank of Jamaica (JamDex) and the Reserve Bank of Zimbabwe (the GBDT).

Prior Executive Order and Treasury Framework

To the extent they are inconsistent with the terms of the Order, the Order revokes Executive Order 14067 (“EO 14067”) as well as the Department of the Treasury’s “Framework for International Engagement on Digital Assets” (the “Treasury Framework”), which were both issued in 2022 under the Biden Administration. EO 14067 focused on provisions around consumer protection, data privacy and financial market stability. The Treasury Framework was intended to ensure that, in the context of the development of digital assets, America’s core democratic values are respected and both consumers and business interests are protected, and the global financial system and international monetary systems are preserved.

Looking Ahead

The potential for some certainty around regulation of digital assets in the United States will be very welcome throughout the industry. To date, in light of the Biden Administration’s approach of regulation by enforcement, many market participants have actively avoided any touchpoints with the United States, which has certainly stymied the potential for growth in the de-fi markets.

Although the Order focuses on national policies, it is important to note that the implications of U.S. regulations on the digital asset industry will be global.

The Order directs the Working Group to hold public hearings and “receive individual expertise from leaders in digital assets and digital markets” as appropriate. Market participants should continue to monitor the commentary from the Working Group and where possible Provide feedback. Reed Smith will continue to monitor and review any developments with respect to the Working Group. Please let us know if you should like to be added to our mailing list for any digital asset developments.

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