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White House 2023 Economic Report Critiques Crypto Assets
Practical Law Legal Update w-038-9307 (Approx. 4 pages)
White House 2023 Economic Report Critiques Crypto Assets
by Practical Law Finance
| Published on 28 Mar 2023 • USA (National/Federal) |
The White House published the 2023 Economic Report of the President, which includes a chapter that is highly critical of digital assets.
On March 20, 2023, the White House published the 2023 Economic Report of the President, which, for the first time, includes an entire 35-page chapter on digital assets, entitled Digital Assets: Relearning Economic Principles. The chapter provides a number of pointed criticisms of cryptocurrency – an apparent shift from the previous approach of the Biden administration, which issued an executive order in March 2022 directing government agencies to assess the risks and benefits of US-government sponsored digital assets and their related technology (see Legal Update, President Biden Signs Comprehensive Executive Order on Digital Assets Including Exploration of US CBDC).
In a section entitled "The Reality of Crypto Assets," the report states that "crypto assets are very volatile, and, hence, highly risky." The report further concludes that "crypto assets to date do not appear to offer investments with any fundamental value, nor do they act as an effective alternative to fiat money, improve financial inclusion, or make payments more effective."
The report goes on to conclude that cryptocurrency generally does not perform all the functions of money as effectively as "sovereign money" such as the US dollar and that cryptocurrency therefore does "not serve, from an economic perspective, as an effective alternative to the US dollar." The report notes that:
- While cryptocurrencies can serve as a unit of account, individuals normally first need to convert the cryptocurrencies to dollars to understand relative value.
- Cryptocurrencies are not as effective a medium as the US dollar since they their purchasing power is limited to a smaller number of institutions than the dollar.
- Due to the substantial amounts of volatility that cryptocurrencies experience, they do not provide a stable store of value.
The report goes on to list a variety of criticisms of crypto assets, including that:
- Stablecoins can be subject to run risk.
- Crypto assets can be harmful to consumers and investors and subject to fraud due to lack of regulation and enforcement.
- The economic benefits from distributed ledger technology (DLT) have been limited.
- Crypto assets have not brought about touted benefits such as:
- improving payment systems;
- hedging against inflation;
- increasing financial inclusion; and
- creating mechanisms for the distribution of intellectual property and financial value that bypass intermediaries.
The report explains that "the growth of crypto assets revealed a demand for a faster and more inclusive financial system with a real-time payment system and circulating digital money." Concluding that "this vision has not been realized," the report suggests that the Federal Reserve's FedNow system, which plans to launch in July, may address that need (see Legal Update, Federal Reserve Announces July Launch of FedNow Instant Payment Service).
The report concludes with an assessment that crypto assets currently do not offer widespread economic benefit. Additionally, the report claims that crypto assets are mainly a speculative investment vehicle and not an effective alternative to fiat currency. The report acknowledged that some crypto assets are here to stay, and states that much of the activity in the crypto-asset space is covered by existing regulations. The report notes that US regulators are expanding their capabilities to bring new entities under compliance.