[ad_1]
A new report from the White House blasts digital assets for failing to deliver on their purported initial promises and increasing risks to consumers and the entire US financial system.
The president’s annual economic report to Congress raises grave doubts about the usefulness of digital assets, and comes almost exactly a year after President Joe Biden ordered several federal agencies to research and issue reports on the matter.
Noting that digital assets have been touted as a means of distribution for intellectual property and financial value, better payment mechanisms, avenues for increasing financial inclusion and ways of bypassing financial intermediaries, the report argues that “so far, crypto assets have delivered nothing. . this benefit.”
“Indeed, crypto assets to date do not appear to offer investments of any fundamental value, nor do they act as effective alternatives to fiat money, increase financial inclusion, or make payments more efficient; instead, their innovation is largely about creating artificial scarcity to support crypto asset prices — and many of these have no fundamental value,” said the report released by the Biden administration. “This raises questions about the role of regulation in protecting consumers, investors and the rest of the financial system from panic, crash and fraud related to crypto assets.”
Tone shift
Critics in the report to Congress may signal a shift in approach from agnostic to open hostility towards digital assets.
The White House suggested that the Fed’s soon-to-launch rapid payments network could eliminate many of the arguments for digital assets, saying that “sustained investments in a nation’s financial infrastructure have the potential to offer significant benefits to consumers and businesses.” The report casts doubt on – but does not rule out – the possibility of a US central bank digital currency, saying that CBDCs could impair credit availability and increase the risk of bank runs.
The annual economic report notes that several benefits from distributed ledger technology may be realized in the future. It specifically cites the New York Federal Reserve’s pilot program for a wholesale central bank digital currency aimed at making interbank payments, including cross-border transactions, almost instantaneously.
The White House document also argues that digital assets are neither an effective store of value, nor an effective means of payment.
“There are also tensions in assets being promoted as money and investment vehicles,” the report states. “As money, instruments must have a stable value, exhibit limited price volatility. But as a risky asset, it must be subject to price volatility, which investors will compensate for with high expected returns. Holding everything else constant, the riskier an asset, the less likely it is to function as money effectively.
That includes the prospect of stablecoins becoming a widely adopted tender, the report said.
“Stablecoin holders who do not have redemption rights may not be able to find counterparties willing to exit their stablecoin positions,” reads the document, which echoes a report by the Financial Stability Oversight Board that voted for USDC Tether and Circle. The White House added that stablecoins are “too risky” to serve a broad payment purpose.
But what about the underlying technology?
The White House appears to have a dim view of distributed ledger technology as a whole, citing arguments that pre-existing technologies can perform a similar function better, and punch holes in certain use cases. It also notes frequent non-compliance in securities and other financial regulatory laws, a large number of frauds, and an unusual concentration of activity by crypto trading platforms that would be prohibited on existing exchanges.
The White House also criticized proof-of-work mining, arguing that it has “little, if any, accompanying benefits”, for the communities where miners are established while increasing local energy costs and increasing the risk of a power crunch.
DeFi has not escaped the White House’s criticism either.
“While DeFi applications claim to help expand access to credit by reducing intermediation costs, they pose serious risks to investors and pose at least two risks to the wider financial system: the use of significant leverage, and the performance of regulated functions without proper regulatory compliance. appropriate. regulation.”
At the end of its chapter on digital assets, the White House urged that regulators “must apply the lessons that civilization has learned, and thus rely on economic principles, in regulating crypto assets.”
The Council of Economic Advisers, one of the two main economic policy units at the White House, prepares an annual report, which is signed by the president. Biden in February nominated Jared Bernstein, a current member of the panel and a former official of the Obama and Clinton administrations, to chair it.
Whether the criticisms presented in the report reflect the opinion of the majority in government remains to be seen. Lael Brainard, former deputy chair of the Federal Reserve and new head of the National Economic Council, another of the White House’s main economic policy groups, has played an active role in the Fed’s CBDC research.
© 2023 Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
[ad_2]
Source link
