by Hannah Lang
(Reuters) – The Biden administration said Friday that U.S. government agencies should redouble enforcement of the digital asset sector and identify loopholes in cryptocurrency regulations, citing the potential for abuse and harm even as it pointed to its growing role in global finance.
The Treasury will also lead a group of government agencies that will consider a central bank digital currency, although the White House has not endorsed a digital dollar.
The collective government action, announced in a series of published reports, follows an executive order signed by US President Joe Biden this year “on ensuring the responsible development of digital assets.”
“Innovation is a hallmark of a vibrant financial system and economy, but as we have painfully learned from history, innovation without proper regulation can lead to disruption and significant damage to the financial system and people,” Treasury Secretary Janet Yellen told reporters. .
The reports urged regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to issue guidelines and rules for the risks of the digital asset ecosystem, including the potential for cryptocurrency to be used for money laundering or fraud.
The White House also said that Biden would consider asking Congress to amend the Banking Secrecy Act (BSA) to apply to digital asset service providers, including cryptocurrency exchanges and non-fungible tokens, or NFTs. The BSA requires lenders to report suspicious transactions to the Treasury.
Biden will also consider recommendations from agencies to create a federal framework to oversee non-bank payment providers.
The Department of Justice also said it is creating a Digital Asset Coordinator to oversee 150 federal prosecutors to investigate and prosecute digital asset crimes as part of its efforts to “combat the growing threat posed by the illicit use of digital assets.”
The value of cryptocurrencies jumped above $3 trillion in the past year, but the sector has faltered in recent months as investors have pulled out of risky assets due to rising interest rates.
US Commerce Secretary Gina Raimondo noted the risks, adding that well-regulated digital assets could make international payment systems more competitive and help disadvantaged populations.
Without proper oversight, Brian Dees, director of the National Economic Council, said cryptocurrencies can harm financial stability and national security.
“There is a need to regulate cryptocurrencies if digital assets are to play a role that we believe can foster innovation and support our economic and technological competitiveness,” he said.