Digital Currencies Reduce “Efficacy” of American Sanctions, says Treasury Department
The Biden administration is now warning that cryptocurrencies pose a threat to the sanctions program of the US and calls for modernizing how sanctions are deployed and using a more multilateral approach to them so that they remain an effective tool.
In a report published Monday, the Treasury Department said that their adversaries are increasingly turning away from the US dollar to facilitate their transactions amidst the rise of cryptocurrencies which it feels can erode the power of American sanctions. The US has over 9,000 sanctions in place.
“Technological innovations such as digital currencies, alternative payment platforms, and new ways of hiding cross-border transactions all potentially reduce the efficacy of American sanctions.”
“These technologies offer malign actors opportunities to hold and transfer funds outside the traditional dollar-based financial system.”
The seven-page report didn’t offer much detail about the Treasury’s plans, but a senior Treasury official said that one important measure to prevent this evasion of sanctions could be greater coordination with other countries. This would make it more difficult for cryptocurrencies to be converted into government-issued money, the official added.
“We are mindful of the risk that, if left unchecked, these digital assets and payments systems could harm the efficacy of our sanctions.”
The Biden administration is also targeting stablecoin and is prepared to issue a separate report on stablecoins this year. It is actually looking to regulate stablecoin issuers as banks. The Financial Stability Oversight Council is also meeting later in the week to get an update on the President’s Working Group’s pending report on stablecoins.
Meanwhile, a cryptocurrency lobby group told US regulators that asset-backed stablecoins do not pose a systemic risk to the US financial system and should not face a new set of rules.
The Washington- based Chamber of Digital Commerce said in a letter that retail-focused stablecoins pegged to the dollar should not be subject to a new set of rules “simply because new technology is being deployed.”
Stablecoins are “not at significant scale to merit a separate, compulsory regulatory regime,” it said, adding that instead of treating them as investment products, they should be treated like other retail-focused digital payment tools.