Recent weeks have seen a flurry of activity at the US federal government level surrounding cryptocurrencies and related technology. Policy actions have come from both sides of the aisle. Democrat Stephen Lynch recently introduced the Electronic Currency and Secure Hardware (ECASH) Act, which shifts the mandate of creating an electronic dollar to the Treasury department as opposed to the Federal Reserve. Republicans Ted Cruz and Tom Emmer voiced concerns over government forays into citizens’ privacy and introduced respective bills focused on limiting the role of the Federal Reserve in issuing digital currency. In January, the Federal Reserve issued a white paper exploring potential boons and questions surrounding the issuance of a CBDC in the US. Early in March President Biden issued an executive order discussing many aspects of cryptocurrency, aimed at minimizing risk and maximizing US competitiveness.
Two paradigms surrounding cryptocurrency are emerging within the federal government that somewhat follow traditional political patterns. Progressives are focusing on the economic empowerment potential of CBDCs and positively serving underbanked communities. Conservatives are concerned with the privacy of individual citizens and restricting the role of government in the decentralized currency arena. Despite the increasing political polarization that has recently characterized domestic US politics, there appears to be some room for cooperation on this topic. A shared desire exists for the dollar to remain dominant in the coming years as the global digitization of currency occurs.
Progressive Trends: ECASH
Consistent with their ideological underpinnings, progressives are taken by the economic growth potential that digitized currency can provide, epitomized by the ECASH bill. Underbanked (often minority) communities have been shown to greatly benefit from decentralized currency. Cash still plays a large role in many minority-owned business communities in cities throughout the country, and the ECASH bill focuses on supplementing as opposed to replacing physical cash. Overall, the act calls on the Treasury Department to create a digital version of the US dollar that:
- Promotes consumer privacy and safety,
- Contains anti-money laundering and counterterrorism compliance mechanisms, and
- Improves financial access and economic outcomes for underserved (often minority) communities.
These goals represent the increasingly progressive ideology of the Democratic party. However, contrary to prevailing skepticism of the government in crypto circles, the focus of the (traditionally) interfering Democratic party appears to be more in line with decentralized crypto values. The ECASH act focuses on individual economic empowerment, and the delegation of responsibility to the Treasury, as opposed to the Fed, which is an important distinction. The digital currency created would not be backed by the central bank and would operate without a ledger to alleviate privacy concerns. These key factors help to dispel existing concerns among crypto hawks that government overreach is inevitable.
Conservative Trends: Protecting Privacy
Conservative developments surrounding cryptocurrency are less ambitious than their progressive counterparts. Consistent with their ideological base, measures introduced by conservatives focus on restraining the role of the central government in the crypto sphere. Republicans Ted Cruz and Tom Emmer introduced similar bills in the Senate and House that explicitly prevent the Federal Reserve from issuing a central bank digital currency to any individual. Both mentioned the potential for data gathering through a CBDC by the Chinese Communist Party as an example of the path the US needs to avoid. Similar to some Democrats, Cruz mentioned the individual economic empowerment potential of a digital dollar (though highlighted the need for minimal government intervention). It’s here where common ground emerges between the parties. Both recognize the potential of a digital dollar to catalyze economic growth in various communities. In addition, both parties recognize the importance of digitizing currency on the global stage – with the US being the main party that sets regulations and develops global frameworks. In order to compete with powers such as China, it’s imperative that the federal government develop some form of digital currency.
Conclusion: US Government’s Growing Role
While the exact direction of intervention remains to be seen, increased federal government involvement in the crypto arena is inevitable. Existing ideological underpinnings will drive policy on both sides of the aisle, though fears of overregulation from the left are overblown. Room for cooperation between parties exists given the shared desire for the US dollar to remain dominant on the international stage, and the potential that digitization of the dollar unlocks in this regard.
- The U.S. dollar must digitize in order to maintain its status as the world’s dominant currency.
- This will drive increased cooperation among federal representatives, despite growing domestic polarization.
- The role of the Federal Reserve in creating a CBDC/digital dollar has yet to be fully defined, and will continue to be hotly contested. However, 2022 will see heightened federal government activity surrounding digital currency as nations across the world begin to attempt to shape norms and rules that will govern behavior in the crypto space.