On July 5, 2022, Circle submitted its response to the U.S. Department of Commerce’s Request for Comment on a Competitiveness Framework for Digital Assets. The Department of Commerce was tasked by the Biden Administration to examine U.S. competitiveness in the digital assets space as a part of the wider Executive Order on Ensuring Responsible Development of Digital Assets.
The United States should continue to cultivate and promote groundbreaking innovations and allow for competition between digital asset market participants. Circle is an active participant in conversations with policymakers and regulators about the future of digital asset regulation, and looks forward to robust regulatory frameworks that will advance competition, protect consumers, improve financial inclusion, while fighting financial crime risks in the digital asset economy.
Circle’s comments to the Department of Commerce underscore the following points:
- How private sector, open blockchain-based payment innovations currently support robust competition in the digital asset economy in the United States;
- The importance of the United States leading global adoption of clear regulatory frameworks, which will likely usher responsible innovation;
- The difference between privately-issued digital currencies and central bank digital currencies (CBDCs) as they relate to digital asset competition; and,
- The benefits that competition in this industry can bring to domestic and international financial inclusion efforts and job creation.
Key Points and Excerpts:Private sector blockchain-based payments support competitive markets:
- “Open and transparent public blockchains function as the payment rails over which USDC circulates, securely executing millions of transactions. Exchanges allow retail end-users to buy, sell, and transfer value with digital assets; Virtual Asset Service Providers (VASPs), including digital wallets, allow end-users to store value represented in digital assets. Market participants in this space are constantly innovating, offering consumers and merchants new options to engage with the digital asset economy. These businesses are responding to market demands and providing features such as privacy-preserving, secure digital asset custody for end-users, interoperability for digital assets across blockchains, and new ways to use and transfer digital assets, including in traditional financial use-cases like payments. Other businesses are emerging around these market participants, providing novel services like blockchain forensics and analysis, which can supplement anti-money laundering (“AML”) and know-your-customer (“KYC”) functions for digital asset firms, and assist businesses and governments to track the flow of funds that move across blockchains and target where there may be cases of illicit finance.”
- “The United States should play a strong leadership role in setting international standards for prudential and AML regulations around digital assets. Many countries are currently considering a variety of regulatory frameworks for stablecoins, but materially different requirements from one country to another will significantly increase the cost of compliance to a nascent industry and possibly open the door to a “race to the bottom” in countries that adopt a lax regulatory regime. The United States has a tremendous opportunity to serve as a standard bearer and to work with other countries to harmonize rules that meet its own high bar. Clear, consistent rules will enhance the reach of dollar-denominated digital currencies and, accordingly, the U.S. dollar. Commerce should work with other departments and agencies in the U.S. government to establish regulatory clarity internationally so that digital dollars can have the maximum international reach.”
- The geopolitical and economic competition for attracting digital assets firms now includes major countries and financial centers, as well as the third largest economy in the world, with the passage of Europe’s far-reaching Markets in Crypto-Assets (MiCA) framework. This creates pan-European regulatory clarity, clear licensing and market conduct standards and, if left unanswered by national U.S. policy, poses potential competitiveness challenges to firms looking for global domiciles for their businesses. These trans-Atlantic rules should not be framed as competition with allied nations or regions, but rather as an opportunity for harmonization.
The difference between CBDCs and privately-issued digital currencies:
- “Irrespective of the form factor of a CBDC, the technology standards required for issuing a digital dollar from a central bank would necessitate a specific technology bet by the government. While over 105 countries around the world (representing 95% of the world’s GDP) are mulling the risks and rewards of CBDCs, the global extensibility of the U.S. dollar depends in large part on rules-based, free market money movement innovations. Critical global financial markets infrastructure like SWIFT, ACH, credit cards, debit cards, and travelers checks, among others, have accrued enormous value to the United States and the global economy. This same paradigm should hold true with the advent of privately-issued digital currencies, where the extensibility of trusted, well-regulated always-on digital dollars is done in a manner that protects financial integrity while promoting innovation and inclusion.”
- “Circle is working to advance financial inclusion, starting here in the United States. Digital assets and blockchain technology are a critical tool to help increase financial inclusion because they are inherently lower cost, faster, and more accessible than a traditional bank account. Trusted digital currencies like USDC and blockchain-based financial services are enabling internet-native applications and real-world financial use cases and transactions. For example, Circle recently announced a partnership with Coinme and the Stellar Development Foundation to enable the conversion of physical currency to USDC without a bank account, a critical step to onboarding unbanked populations to digital financial services.”
- “Furthermore, cross-border payments using digital assets on open blockchains have the ability to provide transparency into payment flows, thereby making these payments more corruption-resistant. For instance, low-cost, corruption-resistant remittance corridors using blockchain can not only speed the transmission of U.S. aid and relief (including post-disaster assistance), they can also ensure only intended recipients receive funds. These models, with the support of international aid and development organizations, can also support financial inclusion for internally displaced persons and refugees, among others.”