Yellen discussed the principles which will guide Treasury’s approach to digital asset policymaking — and its work as part of President Biden’s executive order, “Ensuring Responsible Development of Digital Assets,” signed March 9.
“I won’t predict where this work will take us, but that does not mean we are navigating without a compass,” Yellen said at the American University’s Kogod School of Business Center for Innovation. “Digital assets may be new, but many of the issues they present are not. We have enjoyed the benefits of innovation in the past, and we have also confronted some of the unintended consequences.”
According to Ari Redbord — a former senior advisor for the U.S. Treasury Department and now head of legal and government affairs at blockchain intelligence company TRM Labs — Yellen’s speech was both comprehensive and far-reaching.
“She essentially built on the recent Biden executive order to tackle issues in a more granular way,” Redbord told GOBankingRates. “She addressed stablecoins, the issuance of a central bank digital currency, and the need for oversight of the cryptocurrency industry. That said, the speech was overwhelmingly positive.”
Redbord added that Yellen, like the executive order, focused on the need for global cooperation and spoke to the idea of responsible innovation.
“The speech was carefully written to thread the needle — on the one hand it focuses on the need for regulation, but also highlights the need for U.S. leadership in the world and the need to foster responsible innovation,” he said. Redbord added that her remarks will be well received by the cryptocurrency industry because they aid the push toward acceptance of the emerging technology — and also the acknowledgement that we need to build the trust layer for investors, a trust layer consisting of “anti-money laundering tools, consumer protections, and stability.”
Yellen said that adoption of cryptocurrencies for payments may be slow because of their recent volatility combined with high fees and slower processing times than those associated with other forms of payment.
“As a practical matter, you’d have a hard time using cryptocurrency to buy a sandwich or a gallon of milk,” she said. “Other digital assets — like stablecoins or potential central bank digital currencies (CBDCs) — could succeed at being more widely used as a means of exchange, raising potential benefits and risks.”
Yellen said that Biden’s executive order tasked experts across the federal government with conducting in-depth analysis to balance the responsible development of digital assets with the risks they present. These tasks will be guided by six policy objectives: protect consumers, investors and businesses; safeguard financial stability from systemic risk; mitigate national security risks; promote U.S. leadership and economic competitiveness; promote equitable access to safe and affordable financial services; and support responsible technological advances, which take account of important design considerations like those related to privacy, human rights, and climate change.
“Over approximately the next six months, Treasury will work with colleagues in the White House and other agencies to produce foundational reports and recommendations related to these objectives. In many cases, the work tasked by the executive order builds upon ongoing efforts at Treasury,” Yellen said.
In terms of a CBDC, Yellen reiterated that under the order, the Biden administration will publish a report analyzing possible design choices and implications for payment systems, economic growth, financial stability, financial inclusion, and national security.
“I don’t yet know the conclusions we will reach, but we must be clear that issuing a CBDC would likely present a major design and engineering challenge that would require years of development, not months,” she said. “So, I share the president’s urgency in pulling forward research to understand the challenges and opportunities a CBDC could present to American interests.”