President Biden on Tuesday signed a long-awaited executive order on cryptocurrencies, directing federal agencies to focus regulatory attention on six areas, including protecting U.S. consumers and mitigating the risk of illicit activity. It also called for “urgency” around research and development efforts into a possible central bank digital currency (CBDC).

For more on what this means, Marketplace Morning Report’s David Brancaccion spoke to Ari Redbord, a former federal prosecutor and Treasury Department official who’s now head of legal and government affairs at TRM Labs, a cryptocurrency compliance firm. Below is an edited transcript of their conversation.

David Brancaccio: This document from the White House could have been all about “crypto stuff is money laundering on a stick, it threatens financial life as we know it.” But that was not the tone of this Biden plan.

Ari Redbord: Yeah, it was really quite the opposite, and is extraordinary. I was expecting certain things and really sort of the positive tone was not necessarily one of them. But really, I think what it showed was, we’ve moved from this world of conversations around sort of banning crypto or the technology itself, and really sort of approaching a world where the focus is on thoughtful regulation. If you sort of look at the document as a whole, there’s a lot of focus on areas such as financial inclusion, and the promise of the technology. And really, the sort of thing that was most significant to me was this call for U.S. leadership in the world on cryptocurrency and emerging technology, sort of this clarion call for the U.S. to really be a leader in this space, rather than to follow along. 

Brancaccio: The details of the document seems to have really cheered the crypto enthusiasts here. It also talks about the urgent need to really figure out if the U.S. will have some sort of digital currency, an official one.

Redbord: Yeah, no, it’s really interesting. You know, the Federal Reserve a few months ago came out with a paper on Central Bank digital currencies. And basically, what that is, it’s a digital version of fiat tied to the central bank, as opposed to cryptocurrencies which are essentially more decentralized. And the Fed paper was very lukewarm on the idea, it sort of went back and forth talked about essentially, you know, “we’re not going to move on this without the executive branch, or an act of Congress.” Well, here, it talked about the urgent need to research and study and potentially develop a central bank digital currency in order for U.S. leadership and economic competitiveness in the world on this. And that was really, really extraordinary. To be clear, it does not say that the Fed should develop a central bank digital currency, but it does say we must urgently study this issue. And it’s pretty significant.

Brancaccio: By the way, fiat is not necessarily an Italian car, it’s a government-issued currency that isn’t backed up by say, gold; it’s just have it on faith, this is worth something. Now, crypto is also money laundering on a stick. It is used by criminal enterprises, it may be used by, for instance, Russians, these days, to evade sanctions. The Biden outline here — I guess we should call it an outline — does address this. 

Redbord: It does. And obviously, look, illicit finance issues are always top of mind when we’re talking about cryptocurrency. Because look, as you build a new financial system, you need to ensure that it stays safe.

So the Russia example is a great one. Russian actors – I don’t think the regime, or Russia, or the Kremlin as a whole –  but Russian actors will attempt to evade sanctions using crypto because it lives and moves outside the U.S. financial system. That said, there are controls in place. Large cryptocurrency exchanges where most of the liquidity exists today have compliance controls in place because you talk about regulation, you talk about this executive order … cryptocurrency businesses in the United States are regulated, like any money service business, like any financial institution. They have to have robust compliance controls in place. 

So they have transaction monitoring, like TRM, they have licensing, they have to file suspicious activity reports. So they have very strong controls in place today, I will say that Russian actors, sanctioned individuals, will look to non-compliant exchanges. And that’s really where I think law enforcement and regulators need to focus. And there’s a an entire section in this executive order on the importance of compliance and that focus on sort of the non compliant, what I’d call the illicit underbelly of the larger crypto ecosystem.

Brancaccio: To what extent do you think that the tone of this overall document is informed by a sense that if the U.S. doesn’t show leadership on cryptocurrencies, certainly China will figure it out?

Redbord: I think is very much informed by that. In fact, probably more than I thought it ultimately would be. There’s, in fact, a line talking about central bank digital currencies, about really the importance of the U.S. leading, but not just in it alone, working with partner democracies all over the world to get this right. And that’s, to your point, a nod to the fact that China has really sort of led the way so far on this with its own central bank digital currency. The U.S. to some extent is playing catch-up. But there was a reference in here to needing to essentially bake in democratic principles, our values, to a central bank digital currency, which is very much sort of saying, “hey, if we’re not going to lead in the world, there’s a good chance China will.” And I think there’s some criticism out there that China will use their central bank digital currency almost as a surveillance tool, as opposed to anything else.