Treasury Secretary Yellen Offers "Lessons" for Regulating Digital Assets
Commentary by Steven Lofchie
Treasury Secretary Janet L. Yellen described the Biden Administration's approach to digital assets regulation.
At an address before the American University Kogod School of Business Center for Innovation, Ms. Yellen described a framework for regulation based on five "lessons."
1) The financial system benefits from responsible innovation. She suggested that innovation could overcome current barriers for digital assets (e.g., high transaction fees and slow processing times) to be a more reliable form of payment. She noted that a Central Bank Digital Currency may address some of these barriers. She concluded that "innovation that improves our lives while appropriately managing risks should be embraced." She cautioned, however, that "financial innovation" should benefit working families, not exacerbate inequality, and not increase illicit finance risks or increase systemic financial risk.
2) Vulnerable people often suffer the greatest harm from a financial market failure. Referring to the 2008 financial crisis, Ms. Yellen said the goal of digital assets regulation should be to promote responsible innovation while managing the risks involved, especially those that could disrupt the financial system or the economy as a whole.
3) Regulation should be based on risks and activities, not specific technologies. Ms. Yellen called for regulation to be "tech neutral," saying the same regulations that apply to preventing financial crimes involving stocks and bonds should extend to digital assets as well.
4) Sovereign money is the core of a well-functioning financial system. Ms. Yellen said that the U.S. benefits from the central role the dollar and U.S. financial institutions play in global finance.
5) Cooperation is necessary to ensure responsible innovation. Ms. Yellen called for regulators, policymakers, businesspeople, advocates and other relevant parties to collaborate in their efforts to fostering a stable environment for digital assets. She argued that guidance from different entities with varying opinions will create the strongest and most efficient regulation, and that the only role the government should play is to facilitate responsible innovation.
Ms. Yellen noted the Treasury plans to expand its collaboration efforts with the White House and other agencies over the coming months to produce foundational reports and recommendations aiming to tackle digital asset regulation.
Commentary
Ms. Yellen's remarks are consistent with the view that the government intends to launch a CBDC. In this regard, her remarks suggest that the regulators are considering actions that will present roadblocks for private competitors.