The article first appeared on OMFIF on Jan24th, 2025

Lewis McLellan is Editor, Digital Monetary Institute at OMFIF.

New executive order cites concerns that US CBDC threatens financial system stability

Just four days after his inauguration, US President Donald Trump is starting to make good on his promises to the crypto market.

After heading into office with a brazen husband-and-wife double act ‘memecoin’ issuance, there was little doubt that Trump would fervently back the crypto market. He followed through on that signal, with an executive order entitled ‘Strengthening American Leadership in Digital Financial Technology’ on Thursday.

As is the case with most executive orders, it is light on firm policy detail. However, it does make a number of important promises.

First, it promises to promote access to public blockchain networks. At present, many institutions, particularly banks, find it difficult to interact with public blockchains because their open nature make them hard to draw regulatory perimeters around. When anyone can participate in a network, know-your-customer checks becomes all but impossible to enforce.

This, combined with the Securities and Exchange Commission’s withdrawal of its controversial Staff Accounting Bulletin 121 (which made crypto a distinct asset class, requiring banks to treat cryptoassets held in custody as a liability and hold an asset against them) opens the door for traditional financial institutions to begin offering crypto services to their clients.

The SEC has also established a crypto taskforce, headed by the well-respected commissioner Hester Peirce. The Commodities and Futures Trading Commission has yet to establish its own cryptoasset regulatory body despite the fact that key legislation presently in Congress would place crypto markets under the CFTC’s supervision.

The convergence of cryptoassets and traditional finance – though contrary to crypto purists’ anti-bank ethos – is likely to provide the boost to crypto-markets that many predicted following Trump’s election victory in 2024.

Second, Trump’s executive order highlights ‘protecting and promoting fair and open access to banking services’, which is a veiled allusion to ending the practice of crypto debanking. Many in the crypto industry have found it difficult to secure banking relationships with reputable US institutions, typically due to banks’ risk management frameworks. How exactly the Trump administration intends to see these rewritten remains to be seen, but it is safe to assume that crypto and traditional banking’s relationship will grow closer.

Third, the executive order hammers a final nail into the coffin of a US central bank digital currency, citing concerns that it would ‘threaten the stability of the financial system’. This assertion has mostly been discarded by the central banks of the rest of the world, whether or not they intend to issue CBDCs. It is mostly asserted by banks that perceive themselves as at risk from disruption by CBDCs.

A likely future for CBDCs and stablecoins

It is also interesting to note that the executive order’s definition of CBDC (‘a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank’) is so broad as to include not only retail and wholesale CBDCs, but also FedWire, the Federal Reserve System’s own wholesale payments service.

While this seems to preclude wholesale CBDC, the Fed may find a way to proceed with finding a means of representing central bank money digitally for use in financial markets or for interoperation with foreign central banks to improve cross-border payments. Such projects may find it beneficial to rid the label of ‘CBDC’ to ensure they are palatable to US authorities, but the legislative efforts so far (the CBDC Anti-Surveillance State Act) are primarily focused on retail CBDCs.

On the other hand, the executive order’s mention of stablecoins as a means of promoting and protecting the dollar’s sovereignty might suggest that the new administration will back private sector efforts to ensure that tokenised cash settlement and cross-border payments is carried out by stablecoins.

If so, that could result in a major divergence in the US from international efforts to bring central bank money onto unified ledgers. This risks seriously devaluing these projects since the dollar holds such an enormously important role in financial markets. For the Bank for International Settlements’ Project Agorá and its ilk to proceed without the dollar would lessen their value. It would also require a major pivot in their design principles to incorporate stablecoins instead of US central bank money.

What Trump 2.0 means for crypto

Trump’s pro-crypto stance will be divisive. Even among fans of the asset class, the issuance of the Trump memecoin (while retaining 80% of the supply) has drawn criticism as a brazen cash grab typifying the worst form of profiteering opportunism that has given the industry a bad name.

The executive order also revives Trump’s campaign promise of a ‘strategic bitcoin reserve’, the main purpose of which appears to be the enrichment of bitcoin holders.

But the removal of the obstructive approach that characterised Joe Biden’s administration (not to mention the much-criticised former SEC chair Gary Gensler’s ‘regulation by enforcement’ attitude to crypto rule-making) creates an environment where cryptoassets and the businesses that serve them can thrive in the US. The EU enjoyed a brief period of relative appeal thanks to the clarity of its Markets in Crypto-Assets Regulation, but the US, already home to the lion’s share of the industry’s talent, is ready to kick into gear.