Department of Financial Protection and Innovation: state payments.

Assembly Member Valencia's proposal to modernize California's state payment systems would authorize the Department of Financial Protection and Innovation (DFPI) to accept digital financial assets for required payments under the Digital Financial Assets Law. The measure establishes a five-year pilot program running from July 2026 through January 2031 to evaluate the integration of cryptocurrency and other digital assets into state financial operations.

The legislation requires DFPI to develop regulations governing how digital financial assets can be used for state-mandated payments. By January 2028, the department must submit a comprehensive report to the Legislature detailing the number and value of processed cryptocurrency transactions, technical and regulatory challenges encountered during implementation, and recommendations for expanding digital asset payments to other state agencies and programs.

The bill builds upon California's existing Digital Financial Assets Law, which established licensing requirements for businesses engaging in digital financial asset activities. These activities involve digital representations of value used as mediums of exchange, units of account, or stores of value that are not legal tender. The temporary authorization to accept such assets for state payments would allow California to assess their viability within government financial systems while maintaining regulatory oversight through detailed reporting requirements.