Connecticut Bans Government Use of Cryptocurrencies

Governor Ned Lamont of Connecticut has signed House Bill 7082 into law, marking a significant shift in the state's stance on cryptocurrencies. The legislation, which takes effect on October 1, prohibits the state and its municipalities from accepting digital assets as payment, holding any reserves of virtual currency in public funds, or investing in cryptocurrencies. This move positions Connecticut as the first state in the U.S. to implement such a comprehensive ban on government entities holding any form of cryptocurrency.

The bill introduces broad reforms to the regulation of money transmission businesses, consumer protections, and digital financial services. One of its most impactful provisions is found in Section 5, which explicitly states that neither the state nor any of its political subdivisions can accept or require payment in the form of virtual currency, purchase, hold, invest in, or establish a reserve of virtual currency. This definition encompasses decentralized digital assets like Bitcoin and Ethereum, as well as centralized tokens or other digital forms of value. The provision effectively blocks state and local entities from adopting crypto in any area of public finance, including holding reserves, accepting taxes, or piloting blockchain payments.

In addition to the formal restriction on the state’s ability to invest in digital assets, HB 7082 also updates Connecticut’s money transmission laws. It expands the legal definitions to include digital wallets, virtual currency kiosks, and the custody or transfer of virtual assets, ensuring that crypto-related services fall within state regulation. Businesses holding or transmitting virtual currency on behalf of others will be required to be licensed, unless they are exempt, such as banks or credit unions. Licensees must maintain full 1:1 reserves matching customer obligations and may only use approved custodians.

The legislation also introduces stricter compliance standards, including enhanced consumer disclosures and limits on how customer assets can be used. This move is part of a broader effort to regulate the use of digital assets within the state, ensuring that any crypto-related activities are conducted in a transparent and secure manner. The bill was passed through the state legislature before reaching the governor's desk for final approval, reflecting a consensus among lawmakers on the need for stricter regulations in this area.

The signing of HB 7082 into law by Governor Lamont underscores the state's commitment to protecting public funds and ensuring the integrity of its financial systems. By prohibiting the use of cryptocurrencies in government operations, Connecticut aims to mitigate the risks associated with the volatile and unregulated nature of digital assets. This decision is likely to spark further debate and potentially influence other states to reconsider their own policies regarding cryptocurrency use in government.