South Dakota maintains veto of crypto regulation

South Dakota Gov. Kristi Noem participates in a panel discussion during a Republican Governors Association conference, Nov. 15, 2022, in Orlando, Florida. AP Photo/Phelan M. Ebenhack

South Dakota’s House failed Monday to override Gov. Kristi Noem’s recent veto of a bill that would have created state regulations for the use of cryptocurrency in the state.

The bill had moved smoothly through the entire legislature, and Noem’s veto from last week was upheld by a 37-30 vote.

Proponents had argued that the bill would have centralized various cryptocurrency systems through a state oversight commission, which would increase transparency. But opponents saw the proposed regulations as a tool for potential government surveillance and monitoring, and said they wanted more time to see how such legislation fares in other states.

Six other states have adopted the Uniform Commercial Code’s update, which requires tangible records of cryptocurrency exchanges so they can be considered money. National commercial standards aim to regulate digital currency exchanges by adding transaction records, but Noem said such a step would take away from South Dakotans’ market freedoms.

“It would be irresponsible to create regulations that regulate something that does not yet exist. More importantly, South Dakota should not open the door to a potential future handover from the federal government, Noem said in a statement last week when he vetoed the bill.

As similar bills emerge in other state legislatures, Republican colleagues such as Gov. Ron DeSantis of Florida and U.S. Rep. Tom Emmer of Minnesota have expressed concerns about possible government surveillance similar to China’s heavy-handed oversight of its markets. The suspicions about regulation of a digital central bank currency come a year after President Joe Biden’s order to explore a federal bank-owned digital currency. Biden’s move sparked a flurry of misinformation, including claims it would create a cashless society.

Bill supporters argued that those who believe that the government will replace cryptocurrency companies with a federal system are mistaken, and that the bill would simply have bridged the gap between federal government and digital currencies, which are not currently recognized as money.

The bill’s sponsor, House Republican Hugh Bartels, said he expects most of the country to pass such code updates amid the rise of various forms of cryptocurrency.

“The misconception is that this bill authorizes central bank digital currency,” Bartels said. “It’s just setting up a way to do business with it.”

The first most popular cryptocurrency, bitcoin, was launched more than a decade ago. While fundamentally digital money, cryptocurrencies are not backed by any government institution.