Earlier this week, the President of the United States signed an Executive Order for the preparation of a national policy for digital assets. We discuss the statement issued, of which the Caribbean region ought to take note.
On Wednesday, 9 March, the White House reported that the President of the United States of America (U.S.), would sign an Executive Order “outlining the first ever, whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology”. The Order signals that work will soon begin on the preparation of a national policy for digital assets, which according to the statement released by the White House, should do the following:
Protect U.S. consumers, investors, and businesses
Protect U.S. and global financial stability and mitigate systemic risk
Mitigate the illicit finance and national security risks posed by the illicit use of digital assets
Promote U.S. leadership in technology and economic competitiveness to reinforce U.S. leadership in the global financial system
Promote equitable access to safe and affordable financial services
Support technological advances and ensure responsible development and use of digital assets
Explore a U.S. Central Bank Digital Currency (CBDC)
To be clear, when one speaks of ‘digital asset’ generally, it tends to be defined as any digital material, such as text, graphics, audio, video and animations, owned by an individual or organisation and includes the right to use it. However, in the banking and financial services context, digital assets are “digital representations of values that are not issued or guaranteed by a central bank or public authority and do not have the legal status of currency or money” (Source: Banking Hub). It thus appears that the focus of the proposed US digital assets policy initiative will be with respect to the financial services/technology sector, and to a considerable degree, cryptocurrencies, and not necessarily encompassing the broader definition of digital assets.
It is also clear, that through the proposed policy, the U.S. is seeking to establish or retain its leadership in the global financial system, along with fostering its leadership and economic competitiveness. As a result, some consideration has been given to financial inclusion, through the need for “safe, affordable, and accessible financial services”, which would redound to the benefit of individuals and micro, small and medium enterprises.
This Executive Order seemed to have been welcomed in most quarters, as it is a recognition of the importance of cryptocurrency in the global financial system, which was estimated to have a market capitalisation of over USD 3 trillion in the last quarter of 2021 (Source: Statista). However, once the policy is developed, it remains to be seen how the U.S. proposes to regulate the space, whilst also promoting its own national imperatives. Nevertheless, below are a few of the takeaways that Caribbean policymakers should be considering, in light of the action proposed by the U.S.
Cryptocurrencies are on their way to transforming the global financial system
With a market capitalisation of over USD 3 trillion, and an estimated compound annual growth rate of around 30%, the global cryptocurrency market is big business and is becoming a force to be reckoned with. To a considerable degree, it is challenging the traditional banking and financial services construct, and as consumer become more savvy and appreciate the gains that can be made in the crypto space, the banks and other traditional financial institutions will need to revisit how they operate and do business.
Here in the Caribbean region, individuals are trading in cryptocurrency – although currently, only anecdotal data exists. Notwithstanding, take-up is increasing, especially since in recent months, non-fungible tokens (NFTs) have become a popular talking point, and so may be the gateway for many people, especially digital artists and creators, into the crypto space.
Fintech is big business and merits further study
Cryptocurrency is considered just one segment under the fintech umbrella. In the Caribbean region, fintech is still an nascent sector, and so there has not yet been comprehensive studies on it, and some exploration of its growth potential, and likely impact on regional economies.
Having said this, Caribbean countries are among the leaders in implementing CBDCs, and some of the platforms that have been implemented have leveraged blockchain technology. However, the thrust of platforms and systems that use cryptocurrencies, is the decentralised and permissionless nature of those constructs, which the region has not yet begun to consider, but with which Caribbean citizens have already begun to engage. In the first instance, it is crucial for regional policy makers to understand the breadth and depth of the fintech space, along with trends that have been emerging, in order to better contextualise the current and potential impact of fintech on the Caribbean region.
The region needs to be proactive in understanding its interests
Through its digital assets policy, the U.S. intends to protect its interest, by ensuring its leadership in the global market, in terms of competitiveness, regulation and innovation, to name a few. All too often, developing countries, such as those in the region, do not understand what their own needs and imperatives are. As a result, and when policies are established by more developed countries, we are caught unprepared, and so seem to be inclined to (almost) blindly adopt them, and then try to understand the implication of those rules on us.
There is something to be said about being more prepared and understanding our own interest, as individual countries and a region as a whole. We ought to know, among other things, what we consider: our sacred cows that we should protect; what we need in order to continue to develop our economies and to foster innovation; and what might currently be of limited relevance to the region.
In summary, the move by the U.S. to develop a digital assets policy should signal to Caribbean countries that it is an area that also deserves our urgent attention. To a considerable degree, Caribbean countries have not begun to address the cryptocurrencies, and are likely to be on the backfoot if that deficiency is not remedied sooner, rather than later.
Image credit: Marco Verch (flickr)
