The U.S. Treasury Department will lay out the risks it perceives cryptocurrencies pose to consumers and the financial system in a series of reports set to become public this month, according to people familiar with them.
The reports, which Treasury is completing and sending to the White House, will contain Treasury’s analysis of crypto markets — without offering many specific guidelines — the people said.
Each will focus on one of four themes: the payment system, consumer protection, illicit finance and financial stability. President Biden’s executive order on digital assets earlier this year commissioned the reports, and asked other agencies to also produce analyses.
The reports come as Washington grapples with how to regulate the cryptocurrency industry and federal agencies battle over who should be responsible for them. Cryptocurrencies remain largely unregulated by the federal government, leaving investors without the protections against fraud and market manipulation that come with many other types of investments. The competition for jurisdiction heated up in recent months as a meltdown in the crypto markets underscored the need for guardrails in the eyes of many policymakers.
The Treasury will make clear that cryptocurrencies pose a strong risk to consumers if they are not subject to appropriate regulation, noting the prevalence of fraud in the market, according to the people. The Washington Post previously reported on upcoming reports.
READ Why the UK and the US need to join forces on crypto regulation
The work will examine in particular stablecoins, digital assets whose value is typically linked to the dollar. While the Biden administration has laid out the risks it sees in stablecoins, a report will look at algorithmic stablecoins, according to the people. A major algorithmic stablecoin, terraUSD, lost its peg to the dollar earlier this year and crashed along with its sister coin, both losing a combined $40 billion in value.
As for illicit finance, the Treasury will look into how decentralized finance can be a hub for money laundering and other criminal activities, according to one of the people.
Another Treasury report will recommend that the federal government continue to explore the creation of a digital dollar backed by the Federal Reserve, according to the people. A separate report from the Department of Justice will examine whether Congress needs to approve the creation of a digital dollar.
“They’re going to talk about how it’s going to be important for the United States to be prepared to move forward with one [central bank digital currency] if there is broad support for it, said Eswar Prasad, a Cornell professor who has spoken to Treasury officials about the reports.
The report will describe possible blueprints for designing a digital dollar without endorsing any particular approach. It will discuss other measures to improve the payment system, including FedNow, an instant payment system the central bank plans to launch around next summer.
Fed officials have been divided over the creation of a digital dollar, making it unlikely that they will move forward with one anytime soon.
Lawmakers have also moved to begin regulating crypto. In the House, a bipartisan pair of lawmakers is negotiating legislation that would subject issuers of stablecoins to federal scrutiny. Several other legislators have come up with their own proposals on how to regulate digital assets.
Write to Andrew Duehren at [email protected]
This article was published by Dow Jones Newswires, another Dow Jones Group service
