By Peter Jacobsen
Trump’s first weeks in office have involved a flurry of executive orders. Some have been dramatic, such as the federal government hiring freeze. Other orders have been toothless or vague, such as the order telling federal agencies that they need to do what is in their power to lower prices.
But Trump’s EO on cryptocurrency is the one that caught my eye. It’s titled: “Strengthening American Leadership in Digital Financial Technology”—but what does that actually mean?
The executive order has two main components: one relating to decentralized cryptocurrency and one relating to central bank digital currencies (CBDCs).
According to the order’s stated purpose:
The digital asset industry plays a crucial role in innovation and economic development in the United States, as well as our Nation’s international leadership. It is therefore 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.
As with most government policies, the language sounds positive. Who doesn’t want America to innovate and grow? But reading more closely might give you pause.
Some of the content is in fact positive. For example, the order requires federal agencies to allow citizens to “participate in mining and validating, to transact with other persons without unlawful censorship, and to maintain self-custody of digital assets.”
Mining is the process by which new crypto tokens are generated. The process varies, but for cryptocurrencies like Bitcoin, mining involves using a computer to solve increasingly complex math problems. The ability to mine is especially important since mining has been politically targeted by extreme environmental groups as a waste of energy. Eventually, the math problems associated with mining become so difficult, computers will be unable to mine any more Bitcoin, making the supply finite.
Allowing individuals to mine is central to the crypto concept. Furthermore, establishing protection for maintaining self-custody of digital assets, keeping them out of the range of unlawful seizures, is one of the most important aspects of cryptocurrency.
The order also seeks to “[protect] and [promote] fair and open access to banking services for all law-abiding individual citizens and private-sector entities alike.” This clause reaches beyond crypto to traditional savings, and is particularly timely due to an increase in politically-influenced debanking of consumers (which occurred with the trucker protesters in Canada).
There are, however, concerning aspects of the order on the cryptocurrency front. For example, the order also states that the executive branch should:
[provide] regulatory clarity and certainty built on technology-neutral regulations, frameworks that account for emerging technologies, transparent decision-making, and well-defined jurisdictional regulatory boundaries, all of which are essential to supporting a vibrant and inclusive digital economy and innovation in digital assets, permissionless blockchains, and distributed ledger technologies.
While I prefer clear regulations to vague directives, I also prefer currency innovation that is regulated by users rather than by bureaucrats. Time will tell exactly what the regulatory framework will look like.
Tackling CBDCs
While the order has upsides and downsides concerning current crypto policies, the parts of the order I’m most excited about are the portions on Central Bank Digital Currencies, or CBDCs. A CBDC is essentially a government-created centrally controlled version of cryptocurrency. As FEE has discussed in the past, CBDCs are a very dangerous idea, and it was troubling that they were being pursued by the Biden administration.
So what does the Trump executive order say about them? Take a look:
[The Trump administration is] 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.
Section 5 of the order covers how this will be done. By the order, it’s now illegal for bureaucrats within government agencies to pursue any plans to establish a CBDC unless it is required by law. In other words, barring the possibility that some bureaucrats could break the law, CBDC initiatives must immediately end unless the legislature passes bills requiring them.
This is a big step because the establishment of a CBDC would require significant political, bureaucratic, and technological infrastructure to be implemented. Trump’s order puts a pause on the building of that infrastructure which began under Biden.
On net, Trump’s order seems to have been taken well by crypto markets, with Bitcoin seeing a small price surge after the announcement of the order. So while the future of government crypto regulation remains unclear, the new administration’s commitment to stopping CBDCs and protecting the rights of those engaging in crypto mining and transactions seems to be a good sign.
- About the author: Peter Jacobsen is a Writing Fellow at the Foundation for Economic Education.
- Source: This article was published by FEE