Secretary Yellen on Crypto

Earlier this month, Secretary Yellen gave a speech on digital assets. She took a moderate position, saying basically that there are good and bad aspects of crypto, and that the role of government is to promote the good and regulate against the bad. Overall, she addressed five topics.

Responsible innovation. She states that innovation in financial services is important, but it has often left working families, the unbanked, and the underbanked behind. She points to delays in paycheck deposits, the difficulties in cross-border payments, and all the costs associated with these inefficiencies. Future innovations in the crypto world need to make sure everyone benefits.

Appropriate guardrails. Yellen points out that financial innovation without proper oversight can lead to average Americans getting burned. She cites the examples of the Global Financial Crisis and the growing power of stablecoins. Innovation is great, Yellen argues, but you have to manage the risk with regulation. She also states that Treasury is working with Congress on stablecoin legislation.

Regulate activity, not technology. Regulation should be tech neutral, according to Yellen. Fraud is possible in traditional finance as well as crypto, she says. A blanket indictment of crypto is wrong and counterproductive. No matter the technology, customers need to be protected based on the risks involved in a financial activity.

Supremacy of the dollar. The US approach to crypto and CBDCs will be based on the government needing to maintain control of the monetary system and to secure the dollar’s world dominance. So, a US CBDC needs to support these goals while improving financial inclusion and facilitating private financial innovation. And, its development is not a foregone conclusion, Yellen suggests.

Public-private cooperation. It is not government’s role to argue for or against crypto in general. Yellen supports a pragmatic approach. The government should only work to ensure responsible innovation, whatever form that may take. This is best done through public-private dialogue informed by past experience.