Yellen Backs Crypto Regulations
In a speech at American University earlier this month, Treasury Secretary Janet Yellen outlined the Treasury Department’s plan to regulate digital assets like cryptocurrency, which largely reflects the Biden administration’s priorities. During the speech, Yellen pushed for a more comprehensive regulatory structure focused more on potential risks than the technology itself.
“Digital assets may be relatively new, but they are part of a larger trend—the digitization of finance—that has been in the making for decades,” Yellen said. “In 1990, there were fewer than 3 million internet users. Now, there are about 4.5 billion, and we take for granted that many aspects of our financial lives can be managed from small internet-connected devices that fit into the palms of our hands.”
“This growth in digital services has opened a world of possibilities and risks that would have seemed fantastical only a few decades ago,” she continued. “Financial services—along with most industries—have evolved in response to exponential advances in computing power and connectivity.”
“Our regulatory frameworks should be designed to support responsible innovation while managing risks—especially those that could disrupt the financial system and economy,” Yellen also said.
In March, President Biden signed an executive order that requires the Treasury Department, Commerce Department, and other agencies to develop reports on the role cryptocurrencies will play in the future of money. It has eased the fears of some lawmakers who want regulators to crack down on the industry because of the unpredictability in crypto asset valuations.
Yellen noted that in most cases, regulators have authorities that are able to both manage risks and provide oversight of different types of intermediaries, including digital asset exchanges. She also said that when possible, crypto regulations should be “tech neutral” and guided by the potential risks posed to businesses and households.
During the speech, Yellen outlined five lessons that she said apply as the government navigates the opportunities and challenges posed by these emerging technologies. First, she said that our financial system benefits from responsible innovation. Second, she said that when regulation fails to keep pace with innovation, vulnerable people often suffer the greatest harm. Third, regulation should be based on risks and activities, not specific technologies. Fourth, sovereign money is the core of a well-functioning financial system and the United States benefits from the central role the dollar and U.S. financial institutions play in global finance. And fifth, we need to work together to ensure responsible innovation.