Donald Trump fulfills promise to crypto community, bans CBDC: What it means

According to Trump’s order, agencies are prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the US or abroad. They can only do so if they are required by law. “Except to the extent required by law, any ongoing plans or initiatives at any agency related to the creation of a CBDC within the jurisdiction of the United States shall be immediately terminated, and no further actions may be taken to develop or implement such plans or initiatives,” read the order. 

The executive order also establishes a presidential working group that has been tasked with developing a federal regulatory framework for digital assets, including stablecoins. This group will address market structure, oversight, consumer protection, and risk management. It will also assess the feasibility of creating a national assets stockpile, likely sourced from cryptocurrencies that have been seized by law enforcement. 

Besides, Trump’s order has laid out a definition for digital assets, which is from now on any digital value recorded on a distributed ledger, including cryptocurrencies such as Bitcoins, tokens, and stablecoins. The assumed stockpile may focus on Bitcoin, as Trump had in the past promised a national Bitcoin reserve using assets seized by the government. As of now, the US reportedly holds 198,109 Bitcoin, which is valued at $20.1 billion. 

Trump has followed through on his Bitcoin-related promises during his campaign trail. He had also granted full and unconditional pardon to Bitcoin pioneer and Silk Road founder Ross Ulbricht. So far, all of this aligns with his promises to create a strategic Bitcoin reserve, ban CBDC, and create a council, etc. 

What does this mean for CBDC?

A CBDC is a form of digital currency that is issued by a country’s central bank. While it may be similar to cryptocurrencies, its value is assigned by the central bank and is similar to the particular country’s fiat (formal) currency. In the last few years, several countries have implemented CBDCs with an aim to transition into digital currencies. CBDCs essentially spell control by one central authority. Trump’s order highlights an opposition to centralised control, which is represented by banning CBDC in favour of the decentralised private-sector solutions.

Trump’s order eliminates the possibility of a US CBDC in the near future, showcasing a strong position against central bank-controlled digital currencies. The order essentially promotes stablecoins by supporting the growth of lawful and legitimate dollar-backed stablecoins worldwide. Meaning stablecoins could serve as a private-sector alternative to CBDCs, essentially supporting the digital economy without direct government issuance. With this, the focus shifts from government-controlled CBDCs to private-sector digital assets, also ensuring the dominance of dollars in the global economy via stablecoins and other crypto innovations. Overall, this pauses any groundwork laid for US CBDC in the past and directs all the efforts towards regulating and supporting private-sector digital asset innovation. 

On the global front, with the US now choosing to maintain influence of the dollar using private-sector solutions instead of government-issued digital currencies, it could likely create a competitive scenario with nations that have been promoting CBDCs. As of November 2023, countries like China, Brazil, South Korea and the UAE have been reported to be developing CBDCs. Bahamas, Nigeria, and Sweden have already developed their CBDCs.

The latest move also signals a shift that elevates Bitcoin and cryptocurrencies to more legitimacy and adoption. However, it also poses challenges, especially to the principles of decentralisation and the stability of the ecosystem. Striking a balance between government involvement in crypto’s principle of openness and independence will be critical to the ecosystem.