A report published by U.S. Treasury Department, addresses handling of cryptocurrencies and management of blockchains. The Treasury Department was urged to come with innovations and recommendations for making U.S. financial system more agile and promising. Almost after 18 months, the report is published to advance and updated the financial system, so it copes with latest technologies. The report states:
Financial regulation should be modernized to more appropriately address the evolving characteristics of financial services of today and in the future.
And latest technologies of toady’s world that can’t be ignored are, cryptocurrencies and blockchains. This was realized by the department as well. It explains the problems and then lays the recommendations, thus, affecting the crypto industry and financial entities.
The report agrees that crypto assets has “substantially increased” worldwide. It further cites a G20 communique to advocate confidence in potential future that lies in cryptos. The cited communique says:
We acknowledge that technological innovation, including that underlying crypto-assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly.
It addresses the need of a rigorous framework to monitor activities such as money transmission and payments. Crypto companies based in the U.S. find absence of framework, like the ones implemented in European Union, quite troublesome as it hinders their operations. Regarding the establishment of a new framework the report says:
It is important that state regulators strive to achieve greater harmonization, including considering drafting of model laws that could be uniformly adopted for financial services companies currently challenged by varying licensing requirements of each state.
On another instance, it also admits the fact of requirement for a new framework because old one is highly out-dated. It recognizes working on framework that is suitable and capable to the technology and trends of present so maximum help and support can be provided by the government. The report states:
The financial regulatory framework is not always optimally suited to address new business models and products that continue to evolve in financial services … Financial regulation should be modernized to more appropriately address the evolving characteristics of financial services of today and in the future.
It further sets its tone of helping, maximum possibility, under the bound of regulations, to people who are trying to bringing innovation, emphasizing on the need of innovation and the gains it can return, with the support form government:
Support of innovation is critical across the regulatory system — both at the federal and state levels….Treasury supports encouraging the launch of new business models … to pursue innovative technologies to lower costs, improve customer outcomes, and improve access to credit and other services.
It further supported innovation by crediting it as the crux of of U.S economy in these words:
Innovation has played a factor in making the U.S. capital markets the largest, deepest, and most vibrant in the world and has been of critical importance in supporting the U.S. economy.
Besides this, the report suggested the visualized formation of sandboxes as well. To implement agile governance, as mentioned before, the idea that is practically adhered by many international countries was looked upon. Sandboxes will not only serve as safe platform for for companies to test their products but will also serve as a great learning experience for regulators and entrepreneurs. The report stated the recommendation of sandboxes along with its benefits by saying:
Treasury recommends that federal and state financial regulators establish a unified solution that coordinates and expedites regulatory relief under applicable laws and regulations to permit meaningful experimentation for innovative products, services, and processes…..Such efforts would form, in essence, a ‘regulatory sandbox’ that can enhance and promote innovation.
This report by U.S Treasury Department, has portrayed governments understandings that if they fail to improve, they might not succeed in maintaining leading position in the field. As the report says:
But the United States cannot take its leading position in innovation for granted. As the rest of the world takes measures to improve its ability to create, develop, and deploy innovative new products and services in the financial sector, the United States risks losing out by failing to provide appropriate regulatory clarity and assurances, and remove unnecessary barriers to innovation.
And what is favorable in blockchain’s and cryptocurrency’s context is that it acknowledges a range of DLT applications that are being developed by the financial services industry helpful in bringing innovation by saying:
Commodities trading and securities settlement […] trusted identity products and services […] [and] the potential for central bank-backed digital currencies, or a tokenized form of a fiat currency that utilizes DLT, [which some assert] could potentially help reduce fees, processing times, and operational risk for market participants.