ABI’s Response to Request for Comment on "Developing a Framework on Competitiveness of Digital Asset Technologies"

What impact, if any, will the global deployment of central bank digital currencies (CBDC) have on the U.S. digital assets sector? To what extent would the design of a U.S. CBDC ( e.g., disintermediated or intermediated, interoperable with other countries' CBDCs and other domestic and international financial services, etc.) impact the sector?

The importance of the U.S. utilizing blockchain innovation for a future digital dollar or CBDC should be an issue that is of paramount importance for industrial policy. Combined with our role in leading multinational institutions, standards-setting, and military, the United States' role in the global financial system is the core of our nation’s leadership as a superpower for good on the world stage. Our nation’s ability to hold rogue regimes and human rights abusers accountable through sanctions has been an essential part of our ability to be a force for freedom and democracy worldwide. The means by which we enforce these sanctions are (of course) the USD.

The question of how our nation seeks to combat attempts by the CCP and Russian government to create an alternative financial system free from the control of international standards and multilateral institutions dedicated to preserving world peace and prosperity through the ability to hold those who commit crimes against humanity or facilitate terrorism and international criminal activities accountable. 

The importance of the dollar remaining a preferred currency has recently been brought front and center due to the recent increase in rapid inflation due to various effects caused by the COVID-19 pandemic and the government’s response. This conversation has only accelerated after Russia’s unprovoked invasion of Ukraine.

Former Acting Comptroller of the Currency (OCC) under the prior Administration, Brian Brooks, who is now CEO of BitFury, shared his perspective on how regulated stablecoins in the U.S. are already winning the digital currency race with the CCP during a December 2021 hearing regarding regulating stablecoins on the House Financial Services Committee. 

Digital dollars are already winning despite any meaningful support or clarity from Congress and the current administration; therefore, imagine how these novel uses of DLTs would further advance under a fully regulated and competitive regulatory framework that mitigates risks and furthers our nation’s role in international markets at a time of unprecedented inflation hurting the preeminence of the dollar as the world’s reserve currency. 

Blockchain-powered U.S. regulated digital dollars have even already been utilized by the U.S. Department of State to achieve critical foreign policy objectives in areas of strategic importance for the furtherance of humanitarian efforts with the legitimate government of Venezuela during the 2020 COVID-19 pandemic, which severely ravaged the country's already fragile healthcare system.

What other factors related to economic competitiveness should Commerce consider in the development of the framework?

The United States has boldly led in the development of the most transformational technologies and financial markets of the past century, which has arguably led to the global social, democratic, and economic advancements the world has experienced after WWII and even more drastically with the end of the Cold War. This was partially due to the inherent benefits provided by our democratic values and free market-driven ingenuity. 

This magnificent wave of U.S.-led innovation and global marketization also required those in our government to ensure the United States is driving standard-setting, as well as fully taking into account that when a radical technological advancements such as DLTs and blockchain networks are out there; they are going to be used by people, organizations, and nation-states as a way to drive their values and systems in the future pipes for data and value. 

That vital fact is crucial for blockchain technology industrial policy in the United States, as our adversaries have taken an approach that allows them to mitigate the technology's negative effects on their government's ability to maintain stability and control; but also ensures they fully harness all potential benefits.

As we’ve seen with the U.S. government's emerging technology regulation in past technological advancements, novel technologies that radically change ways to send and receive data and value can upset the status quo and the incumbents that thrive because of it. Past examples of technologies that experienced widespread cognitive dissonance and upset incumbent organizations threatened by their utility include the printing press, radio airwaves, cable television broadcasting, the internet, the telephone, computer-based financial market infrastructure, and the list goes on. 

The point of looking at these past examples is that they all, at first, were widely misunderstood and misused in various ways that made it easy to discount them as another fad that would just go away with time. It is critical that all stakeholders continue to be engaged to ensure that outside interests not interested in our nation leading this space are not the sole drivers of industrial policy for DLTs in the U.S.

The government needs to ensure that tunnel vision and fear do not drive a CCP-esque crackdown on an industry that is vital to securing U.S. leadership in DLTs and cryptocurrencies; technologies that have been deemed as Critical Emerging Technologies by the White House’s National Science and Technology Council (NSTC) in both 2020 and 2022. That puts these technologies alongside AI, quantum computing, IoT, and autonomous vehicles in terms of their importance and applications for national security.

Beyond enhanced economic competitiveness, how can the U.S. digital assets sector advance the other objectives outlined in the Executive Order? These other objectives include protection of consumers, investors, and business in the United States; protection of United States and global financial stability and the mitigation of systemic risk; and mitigation of illicit finance and national security risks posed by misuse of digital assets.

These innovations require a novel approach to Anti-Money Laundering (AML) and anti-terror financing regimes used by all financial institutions that interact with the global financial system and SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, which some may say, combined with our military, is one of the central pillars of the United States’ economic and political dominance on the world stage.

Historically, the U.S. has been able to sanction these countries, individuals, and entities who engage in terror financing and other nefarious activities. Now bad actors are able to use permissionless financial services, which limits the ability of the U.S. and our allies to be aware of and address these illicit activities. At some point, the U.S. will be forced to bring these blockchain technology innovators into the regulated fold in addition to investing in or incentivizing the development of applications focused on addressing relevant risks.

Because the United States does not have a clear regulatory policy or understanding of these technologies, these countries are using these innovations to circumvent the oversight of the Financial Action Task Force (FATF), which is an international regulatory body made up of financial regulators from across the globe.

While most delegations to FATF are trying to focus on how regulations affect their nations and their own economies, they often overlook the decentralized nature of these recent innovations. In doing so, they neglect to address how bad actors can circumvent these rules in a way that is not stoppable by a traditional regulatory approach. 

This means that the regulators need to utilize the programmability and audibility of blockchains to combat bad actors. U.S.-based companies such as CipherTrace, Chainalysis, Elliptic, and TRM Labs have led the way in the development of these capabilities. Many former intelligence and law enforcement officials have realized the inherent benefits and the threats posed by these technologies. Given their experience, they have a unique perspective on how to combat nefarious activities and circumvention of sanctions.

The U.S. federal government lacks the political will to understand digital currencies and the underlying technologies that enable them, such as DLTs and blockchains. Our country’s incumbency in the financial world gives us a false sense of security. Our enemies know this and are openly taking advantage of this naivete. Our military-industrial complex has developed the ability to follow the money in the traditional financial systems, but these technologies will require a new approach. 

Due to the public and decentralized nature of the blockchain-based digital currency, U.S. intelligence agencies and counter-terrorism financing bodies have begun to utilize high-tech analytics, which allows agencies to tag certain blockchain addresses as belonging to a specific bad actor. These technologies are the key to preserving the use of these innovations for the furtherance of responsible innovation that embodies U.S. values while keeping bad actors at bay.