US Treasury report encourages instant payment, recommends more CBDC research

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Unit­ed States Pres­i­dent Joe Biden ordered more than a dozen reports to be writ­ten when he released his Exec­u­tive Order (EO) 14067 “Ensur­ing Respon­si­ble Devel­op­ment of Dig­i­tal Assets.” Five had due dates with­in 90 days, and the last three were pub­lished simul­ta­ne­ous­ly by the Trea­sury Depart­ment on Sept. 16. The reports were pre­pared in response to instruc­tions in Sec­tions 4, 5 and 7 of the EO.

The report ordered in EO Sec­tion 4 is titled “The Future of Mon­ey and Pay­ments.” The report looks at the sev­er­al pay­ment sys­tems cur­rent­ly in use that are oper­at­ed by the Fed­er­al Reserve or the Clear­ing House, which is owned by a group of major banks. These will be sup­ple­ment­ed by the non-blockchain Fed­Now Ser­vice instant pay­ment sys­tem that is expect­ed to begin oper­at­ing in 2023.

Sta­ble­coins are intro­duced along with Fed­Now under the head­ing of “Recent inno­va­tions in mon­ey and pay­ments.” They are sub­ject to a some­what cur­so­ry dis­cus­sion that exam­ines the poten­tial deficits of reli­a­bil­i­ty and Anti-Mon­ey Laundering/Countering the Financ­ing of Ter­ror­ism (AML/CFT) capac­i­ty, about which it concludes:

“Finan­cial insti­tu­tions that deal in sta­ble­coins are sub­ject to AML/CFT oblig­a­tions. How­ev­er, if a sta­ble­coin was wide­ly adopt­ed glob­al­ly as a means of pay­ment, the sta­ble­coin could pose greater risks for illic­it finance due to uneven imple­men­ta­tion of glob­al AML/CFT stan­dards for dig­i­tal assets.” 

The bulk of the report is ded­i­cat­ed to a cen­tral bank dig­i­tal cur­ren­cy (CBDC). Although the report rais­es issues such as the pay­ment of inter­est on a CBDC, the cost of oper­at­ing a CBDC and pub­lic-pri­vate part­ner­ships, the dis­cus­sion focus­es heav­i­ly on risks. 

Relat­ed: White House pub­lish­es ‘first-ever’ com­pre­hen­sive frame­work for crypto

The inter­ac­tion of CBD­Cs and pri­va­cy pro­tec­tion is giv­en sub­tle consideration:

“While phys­i­cal cash can enable anony­mous trans­ac­tions, a CBDC could poten­tial­ly be used at much greater scale and veloc­i­ty. […] There­fore, anonymi­ty in a CBDC sys­tem could present great­ly expand­ed mon­ey laun­der­ing, pro­lif­er­a­tion financ­ing, and ter­ror­ist financ­ing risks com­pared to phys­i­cal cash. […] A CBDC could also offer valu­able new oppor­tu­ni­ties for improved super­vi­sion and AML/CFT compliance.”

The report con­cludes with rec­om­men­da­tions that CBDC research be con­tin­ued “in case one is deter­mined to be in the nation­al inter­est.” In addi­tion, instant pay­ment tech­nol­o­gy should be encour­aged to improve the pay­ment land­scape. A reg­u­la­to­ry frame­work should be estab­lished, and cross-bor­der pay­ment should be prioritized.

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