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To limit the power of central bank digital currencies, or CBDCs, Donald Trump's executive order calls for the controlled creation of stablecoins backed by the dollar.
The banking system, privacy, and US sovereignty are all threatened by CBDCs, according to the order.
To hypothetically grant the US central bank control over the virtual currency supply and guarantee its value, the Federal Reserve was set to issue CBDCs, sometimes known as "digital dollars," which could be interchangeable with real dollars.
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The construction of a CBDC was ordered by former president Joe Biden to be investigated by the Federal Reserve.
Proponents of the concept point to its possible applications in tracking down and combating criminal behavior, as well as in facilitating the opening of bank accounts for individuals without them.
On the other hand, CBDCs detractors, who have included numerous Republicans in Congress for some time, were worred that they would compromise people's privacy and hurt the banking system if they make it less attractive to bank privately.
Though it has studied CBDCs, the Fed has repeatedly stated that it does not intend to issue any at this time.
Fed chair Jerome Powell had said, "People don't need to worry about a central bank digital currency. Nothing like that is remotely close to happening anytime soon."
At the same time, an aggressive international effort to establish CBDCs is being pushed by the head of the International Monetary Fund.
Still, the US president's latest order firmly puts in plan to establish a different global order.
As a safe haven for capital between cryptocurrency transactions, stablecoins are tokens linked to fiat currencies, most commonly the US dollar.
Cash and bonds are the usual guarantors of its value. For example, in international trade, certain stablecoins are finding more and more use as payment methods.
David Sacks, a prominent political donor, venture capitalist, and adviser to the president on matters of artificial intelligence and cryptocurrency, was present at the ceremonial signing.
"America as the global capital of cryptocurrency under your leadership." Sacks said, acknowledging Trump's goal.
Trump, referring to his orders, said, "You find them exciting? They might not be, except they’re going to make a lot of money for the country.”
To maintain the dollar's position as the world's reserve currency, Trump prioritized crypto stablecoins, bringing the interests of the US government to line up with those of issuers such as Tether Holdings and Circle Internet Financial.
Trump banned the work on a digital currency issued by a central bank and prevented any additional development of it.
The directive positions stablecoins, cryptos engineered to exhibit reduced volatility compared to assets such as Bitcoin, so rendering them more appropriate for transactions and transfers—into the contest to maintain the dollar's status as the global reserve currency amidst opposition from geopolitical adversaries like China and Russia.
This move substantiates the efforts made by Circle CEO Jeremy Allaire and Tether CEO Paolo Ardoino in their public initiatives to promote the adoption of their respective stablecoins.
"Stablecoins backed by dollars provide demand for U.S. public debt"$USDt is being used by more than 300M people across the world as the digital dollar, providing a lifeline utility to entire communities in developing countries.
— Paolo Ardoino 🤖🍐 (@paoloardoino) June 14, 2024
These people are underserved by the banking…
However, the risks to stablecoins remain.
There was a brief influx of Tether holders looking to redeem their holdings after the abrupt collapse of TerraUSD in 2022 sparked worries about its possible implications on financial stability.
The Commodity Futures Trading Commission (CFTC) accused Tether of misrepresenting its reserves last year, and the cryptocurrency exchange agreed to pay $41 million to settle the charges.
The utilization and possession of the tokens are additional subjects of dispute. In 2023, Tether's USDT emerged as the most prevalent stablecoin utilized for illicit operations, including terrorist financing, as per a March analysis conducted by TRM Labs.
In October, the Wall Street Journal revealed that Tether was under investigation by federal prosecutors in Manhattan for possible violations of sanctions and anti-money laundering laws.
In an effort to stop its token from being used for illegal purposes, Tether is working with law authorities and has claimed ignorance of any investigation of this kind.
Uncertainty about stablecoins is giving way to support for them under Trump, who ran as a champion for cryptocurrencies.
Legislation regarding stablecoins has been discussed in Congress for quite some time. Within six months after being established, a special working committee was ordered by Trump's executive order to provide a regulatory framework for digital assets, including stablecoins.
The tokens' growing importance as dollar proxies is heightened by their widespread use for payments and money transfers, particularly in developing economies—the main reason for Trump's executive order on the matter.
However, the order contrasts with the stand in other jurisdictions.
The European Union and China are among the other nations that are eyeing CBDCs, or digital currencies issued by central banks, as an alternative strategy.
Since Tether does not yet possess the necessary e-money license, it is required by the new Markets in Cryptoassets regime of the European Union that crypto exchanges within the bloc remove the coin from their platforms.
Most stablecoin tokens are pegged to the dollar, though they are also linked to other currencies, including the euro and the peso. More than 90% of the market value of stablecoins is attributable to USDT and USDC, the two most popular stablecoins, which are Tether and Circle, respectively.
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Tether and Circle are buying dollar-denominated debt assets at a greater rate as their operations expand, which is essential for stablecoins.
Circle had $19.3 billion in Treasury bills at the end of November, while Tether had $84.5 billion. Treasury securities held by Circle were valued at $15.1 billion.
As the use of dollar-denominated private stablecoins grows, there are widespread risks.
According to research released in October by the Financial Stability Board, stablecoins are still not widely used for payment and settlement purposes, but "the connections between crypto-asset markets and fundamental financial markets are expanding and may pose risks to financial stability."
Despite the mixed reactions from the crypto sector, the executive order signifies a victory for a business that intensified its political engagement in the latest election via substantial contributions.
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