Trump bans ‘digital dollar’ work to free the way for private cryptoassets

In an executive order signed last week, Trump said it is the policy of his administration to “support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy”. In this regard, he has pledged to ensure “individual citizens and private-sector entities alike” can “access and use for lawful purposes open public blockchain networks without persecution”; to develop a supportive regulatory framework for emerging technologies, including digital assets; and to “promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide”.

However, his digital finance agenda does not include support for CBDCs, which he said “threaten the stability of the financial system, individual privacy, and the sovereignty of the United States”. He said the establishment, issuance, circulation, and use of a CBDC within the US would be prohibited.

Shanghai-based Leo Xin of Pinsent Masons said Trump’s move could leave the door open for China to become the global leader in relation to central bank digital currencies.

“China has been aggressively pursuing its ‘digital yuan’ project and is already in advanced stages of testing,” Xin said. “If the US steps back, China could solidify its position as a leader in digital currency innovation, potentially influencing global standards and practices. China has the motivation to promote renminbi internationally.”

“On the other hand, so far, China has taken a stringent stance on cryptocurrencies, implementing a comprehensive ban on all cryptocurrency transactions since September 2021. The People's Bank of China (PBOC) cited concerns over financial crime, economic instability, and capital flight as primary reasons for the ban. Additionally, the Chinese government aims to maintain strict control over its financial system and prevent the decentralised nature of cryptocurrencies from undermining its authority. So, we do not expect Chinese government will follow the same strategy of the US, and to continue instead to promote its digital yuan,” he said.

CBDCs are also under consideration in Europe, with early exploratory work on a ‘digital euro’ and ‘digital pound’ having been undertaken by the European Central Bank and the Bank of England, respectively.

Amsterdam-based Lous Vervuurt of Pinsent Masons said a new digital euro is not imminent: “The preparation phase for a potential digital euro started in November 2023 and is expected to last until the end of 2025. Only then will there be a decision whether or not to proceed to the next stage. Any decision to proceed or not is likely to be taken with a sole focus on the interests of Europe, with Europe up until now not really having been in the driving seat of any innovative developments. Should a digital euro be given the go-ahead, its impact is likely to be limited – initially, at least – as a relatively low maximum amount of €3,000 per digital wallet is envisaged.”

The Bank of England is also yet to make a decision in relation to a prospective new digital pound.

In a recent progress report, the Bank of England confirmed that a decision would not be taken until “the second half of this decade” at the earliest.

“We are now in a design phase which will look at the technology and policy requirements for a digital pound,” the Bank of England said. “In the design phase we will test how it could work in the real world. This will bring to life innovative ways to use it so you can see how it might be useful and relevant to you. We will also carry out detailed assessments to work out exactly how a digital pound would operate.”

“At the end of this phase we will have enough information to make a decision on whether to move into a build phase. Parliament will also have a say before any digital pound in launched, and further public consultation will be held to make sure everybody has the opportunity to make your views heard,” it added.