The impact and suggestions of Trump's suspension of central bank digital currency (CBDC)

Author: Cai Xiaoyue, Associate Professor of School of Economics and Institute of World Economics, Fudan University; Source: Tsinghua Financial Review

On January 23, 2025, local time, US President Trump signed an executive order prohibiting any institution from issuing or using central bank digital currency (CBDC) in or outside the United States, and relaxing the supervision of privately issued digital currency. This article analyzes the major changes that the executive order will bring to the US digital asset regulatory environment and ecosystem, and puts forward suggestions for my country's response measures.

On January 23, 2025, local time, US President Trump signed an executive order prohibiting any institution from issuing or using central bank digital currency (CBDC) in or outside the United States, and relaxing the supervision of privately issued digital currency to strengthen the United States' leadership in the field of digital financial technology. The executive order will lead to major changes in the US digital asset regulatory environment and ecosystem, hinder the development of central bank digital currency, but also provide development opportunities for non-US dollar digital currencies and payment systems. The United States has taken the initiative to abandon the development of central bank digital currency. my country should pay close attention to its implementation progress, continue to adhere to the development direction of CBDC, promote multilateral CBDC cooperation and the development of non-US dollar cross-border settlement systems such as digital RMB in the international arena, and enhance its voice and dominance in the development of global CBDC.

Main content of the executive order

The executive order revoked the Executive Order No. 14067 on Ensuring the Responsible Development of Digital Assets issued in March 2022 and the U.S. Treasury Department's Digital Asset International Engagement Framework issued in July of the same year, and instead established a Digital Asset Market Working Group led by the President of the United States. Among them, Executive Order No. 14067 is the first comprehensive policy framework issued by the US government for digital assets (including cryptocurrencies, stablecoins and central bank digital currencies, etc.). It aims to maintain the dominant position of the US dollar in the global monetary system and consolidate the hegemony of the US dollar through CBDC research and development and digital asset rule-making, and respond to the challenges of CBDC outside the United States such as China's digital RMB; at the same time, it takes the US regulatory framework as a blueprint, sets global standards, promotes the United States' allies to form synergies in the fields of digital asset supervision and anti-money laundering, and weakens the influence of "non-compliant jurisdictions" (such as some offshore encryption centers).

The executive order points out that CBDC will threaten the stability of the US financial system, personal privacy and US sovereignty, and requires measures to protect Americans from the risks posed by CBDC. The executive order stipulates that unless required by law, any institution is prohibited from taking any action within or outside the jurisdiction of the United States to establish, issue or promote CBDC, and any ongoing plans or initiatives related to the creation of CBDC within the jurisdiction of the United States shall be terminated immediately, and no further actions shall be taken to formulate or implement such plans or initiatives. This actually prohibits the possibility of foreign central banks issuing and circulating CBDCs in the United States, and also blocks the path for the United States to participate in central bank digital currency cooperation.

The executive order requires the establishment of a digital asset market working group led by the US President. The working group is mainly responsible for evaluating whether relevant regulations, guidance documents, orders, etc. should be revoked or amended, establishing a federal regulatory framework for managing the issuance and operation of digital assets (including stablecoins) in the United States, and evaluating the possibility of establishing and maintaining a national digital asset reserve in the United States, and proposing standards for establishing such reserves. David Sacks, chairman of the working group, said that under Trump's leadership, the working group will "make the United States the world capital of cryptocurrency" and enable the United States to "dominate and lead the world in the field of artificial intelligence."

The executive order supports the responsible development and use of digital assets, blockchain and related technologies in all economic sectors, and relaxes supervision on the issuance and trading of digital currencies by the private sector. These include: first, protecting and promoting the ability of individual citizens and private sector entities to access and use open public chain networks; second, promoting and protecting the sovereignty of the US dollar, including by taking action to promote the development and growth of legal US dollar-backed stablecoins worldwide; third, providing technology-neutral regulations, taking into account emerging technology frameworks, transparent decision-making and clear judicial supervision services to support the digital economy and innovation of digital assets, permissionless blockchains and distributed ledger technologies. The executive order requires that within 30 days of the date of issuance, the U.S. Treasury Department, the Department of Justice, the Securities and Exchange Commission and other relevant agencies (whose heads are included in the working group) should identify all existing regulations, guidance documents, orders or other projects that affect the digital asset field. Within 60 days, each agency should submit a recommendation to the Chairman on whether each identified regulation, guidance document, order or other project should be revoked or modified.

Analysis of the impact of executive orders

Executive Order No. 14067 issued by the Biden administration marks the U.S. government's position on digital assets from "passive response" to "active shaping", attempting to seize the commanding heights of digital finance through top-level design. Its core logic is: regulate the market with regulation, maintain hegemony with technology, and export rules with cooperation. The new Trump administration's revocation of Executive Order No. 14067 and the framework for international participation in digital assets previously issued by the U.S. Treasury Department means that the development and regulation of digital assets in the United States have abandoned the federal government-led model of the previous administration. The relevant regulatory work and projects originally promoted under these bills may stagnate or be re-evaluated, which will have an impact on the policy continuity of digital asset regulation. Although the executive order issued by Trump aims to "protect economic freedom while promoting the United States' leadership in digital assets and financial technology", it clearly excludes the promotion of digital currency research and development innovation at the national government level. Whether the U.S. private sector is able to fully fill the technical gap and be effectively regulated in the field of digital currency innovation is worth paying attention to. At the same time, due to the prohibition of CBDC issuance and the emphasis on the evaluation of existing regulations and the establishment of a new framework by the Presidential Working Group on Digital Assets, the direction of US digital asset innovation regulation may shift to new areas such as paying more attention to the compliance operation of private digital currencies, regulatory innovation of stablecoins, and the establishment of digital asset reserves.

The executive order explicitly prohibits the issuance and circulation of CBDC by any institution within the jurisdiction of the United States, which will deal a heavy blow to the development of the US central bank digital currency. CBDC is regarded as an important part of the future financial system in many countries, with many potential advantages such as improving payment efficiency and enhancing the transmission effect of monetary policy. This ban has caused the United States to actively withdraw from the official competition in the global competition of CBDC, and pin its future digital asset development on its own private capital. As the world's largest economy and financial market, the United States' policy changes will have a profound impact on the international digital currency market. Global digital currency market participants will re-evaluate the development prospects of the US digital asset market and the possible risks of private digital currency issuance.

Banning the issuance of CBDC will make the development of digital assets in the United States more dependent on digital currency innovation in the private sector, which may change the structure and ecology of the US digital financial system. Generally speaking, legal tender is backed by national sovereignty. Relaxing the supervision of digital assets and encouraging the private sector to issue digital currency, which is often not as secure as the central bank's digital currency in terms of value stability and security, may bring new challenges in financial stability and consumer rights protection. The United States' focus on the development of private digital currency runs counter to the practice of other countries in the world actively researching and promoting CBDC. This reverse operation may affect the United States' voice in the formulation of international digital financial rules and the establishment of digital currency standards.

The international cross-border payment and settlement system may be affected by the United States' ban on the issuance of CBDC, especially the cross-border payment system involving US dollar transactions. Central banks and financial institutions in other countries will look for alternatives, such as strengthening bilateral and regional digital currency cooperation or exploring a digital currency system for non-US dollar settlement, thereby changing the pattern of the international payment system. If the regulatory environment in the United States continues to restrict CBDC-related digital financial innovations, and other countries such as the BRICS countries can provide more favorable policy support and innovation environment, the development of mainstream CBDC digital financial innovation and cross-border settlement in the world may bypass the US dollar settlement system and promote major changes in the global cross-border payment system......