Introduction: A constitutional storm on the horizon?
I don’t believe that President Joe Biden’s proposed framework for developing crypto assets is even constitutional. Through his framework, Mr Biden wants to protect consumers and investors in cryptocurrency; ensure the United States’ leadership in the global financial system; and include the marginalized in the financial system. I believe the President could be a lot clearer as to the intent behind the framework. His simultaneous reference to a central bank digital currency is not just a conflation of two different payment systems but is Mr Biden’s admission that the US, as a payment system, is under attack.
What does the US government produce?
As a public corporation, the United States produces three things. First, it issues tax notices, designed to collect the revenue that finances the duties and responsibilities laid out in the U.S. Constitution. Second, it promulgates the rules that are applied in the management of the federal rights-of-way and administration of public capital. Finally, it issues a currency, the notes that can be exchanged for goods and services in the U.S.
Since we focus on the interbank market, I will focus going forward in this piece on the currency. Banks receive a charter from the government to resell the currency and this resale is done primarily through loans. In addition, via the interbank market, banks sell currencies to each other for their proprietary accounts or sell and buy currencies on behalf of their clients on spot or forward markets.
This interbank exchange is necessary for moving funds across borders. Exchanging dollars for euros allows an investor to buy euro-denominated assets and to take advantage of growth and income in the eurozone, for example. A correspondent system of banks allows dollars to be moved and converted in the eurozone and converted into securities, land, commodities, etc.
Crypto and the mitigation of risk …
The original and still prevalent vision of crypto was to mitigate the risks that stem from inflation by converting fiat wealth into a digital token that could be converted back into fiat without degradation in value, no intrusion into the identity of the parties involved in an exchange, and reduced fees for transferring funds.
The Constitution does not prohibit crypto …
There is nothing in the U.S. Constitution that relegates an exchange of wealth for a token to one or multiple government-sponsored networks. The Constitution does not even speak to individual wealth or to how government should regulate its accumulation, transfer, or use. Article I, Section VIII’s reference to Congress’ duty to regulate the value of the currency implies that the currency regulated is the currency issued by the government and resold by its agents. The Constitution, in my opinion, does not preclude a private payment system or the private tokens that run on them.
Yes, one should expect that the federal government would determine which currency it would accept as payment for its fees and taxes. It is not surprising that the federal government would not accept a digital token created for use on a private digital network. The government wants its currency used within the United States. US currency growing in value demonstrates the underlying resilience of the economy. Appreciation in its value tells the world that the US is the place to invest. A strong US currency helps spread the narrative of a strong United States.
Why then would Mr Biden emphasize the US willingness to facilitate innovation in cryptocurrency as crypto poses a use threat the US currency?
Conclusion: Mr Biden does not answer the why of proposed regulation…
The ‘why” of Mr Biden’s framework has not been answered by the Administration. Why does the US government simply buy cryptocurrency if it is interested in facilitating the benefits of crypto? Why waste time recreating a regulatory wheel for cryptocurrency exchanges when it can simply tweak language in either the Securities and Exchange Act or the Commodity Exchange Act once a determination as been made that cryptocurrency is either a security, commodity, or both?
Mr Biden’s framework amounts to word salad designed to buy more votes for a political problem that does not exist. Can Mr Biden afford to alter the expectations of the sixteen percent of Americans already holding or trading crypto?
18 September 2022