US Treasury Secretary Not Crypto Negative – BTC Direct

US Treasury Secretary Janet L. Yellen has spoken out on digital assets. This speech is a follow-up to President Biden’s executive order. Here she outlines 5 lessons that encompass the challenges and opportunities of “emerging technologies.” What is surprising is his “non-negative” view of cryptocurrencies (and therefore especially of CBDCs).

Sequel to American crypto law

Biden signed an executive order on digital assets (read: cryptocurrencies) a few weeks ago. This consists of 7 points that the US will be focusing on in the near future, all of which relate to cryptocurrencies. America can no longer ignore it, as Yellen also sees. “Digital assets may be relatively new, but they are part of a larger trend, the digitization of finance, that has been underway for decades.”

Yellen talks about the explosive growth of cryptocurrencies, compared to the Internet. “In 1990 there were less than 3 million Internet users. Now there are 4.5 billion and we take it for granted that many aspects of our financial lives can be managed from small Internet-connected devices that fit in the palm of our hand. This evidence has yet to grow in crypto, and this brings her to the first point of five lessons.

First lesson: responsible innovation

The first lesson is that the financial system benefits from responsible innovation. A chain of innovation has caused a great transformation in financial services over time. Yellen wonders if cryptocurrencies can reduce processing time and costs. She finds the current system frustrating and expensive.

It has also signaled the introduction of a central bank digital currency (CBDC). “These coins could contribute to a more efficient payment system. As a central bank liability, a CBDC could become a form of reliable money similar to physical money, but one that could offer some of the expected benefits of digital assets.”

“Innovation that improves our lives must be embraced while risks are managed appropriately. But we also need to recognize that in the past, ‘finance innovation’ too often failed to benefit working families, sometimes exacerbating inequalities, creating illicit financing risks and heightening systemic risk,” said Yellen. This led her to her second lesson.

Second lesson: greater harm to vulnerable people

“When regulation keeps pace with innovation, vulnerable people often suffer the most harm,” says Yellen. He refers to the global financial crisis. “Financial institutions called ‘shadow banks’ and an explosion of new financial products allowed dangerous levels of risk to build up.”

“Starting in 2007, investors became wary of these risks and some of the major institutions began to falter. Soon, people who had never heard of a “shadow bank” or subprime mortgage-backed security lost their jobs and savings. […] We must ensure that the growth of digital assets does not create similar dangerous risks or disproportionately affect vulnerable communities.”

He also expresses concern about stablecoins, which have shown uncertainties in the past. “Our regulatory frameworks must be designed to support responsible innovation while managing risks, especially those that can disrupt the financial system and the economy.”

President Biden’s law calls for the Financial Stability Oversight Council (FSOC) to identify the specific risks, arising from cryptocurrencies, in its regulations and make recommendations to address those risks. She just doesn’t know what the FSOC thinks about this. “There is a basic lesson that should be applied,” she says, hinting at the third lesson.

Third lesson: regulations must be technically neutral

“Regulation should be based on risks and activities, not specific technologies.” According to her, when the rules are drawn up, the risks associated with services for households and businesses must be taken into account. Not from the underlying technology. When she talks about these regulations, she says that they should be “technically neutral.”

“The principle of technological neutrality also applies to issues related to tax evasion, illegal financing and national security, issues of particular relevance in today’s world.”

It also highlights at this point that money has undergone significant development. “While computing innovations have accelerated the pace of change, even the most fundamental building blocks of our economy, including our own money, have evolved dramatically over time.”

Fourth lesson: sovereign money is needed

“Sovereign money is at the core of a well-functioning financial system.” He says the US is benefiting from the central role the dollar and US financial institutions play in global finance.

“Some have suggested that a CBDC could be the next evolution of our currency. […] The President’s Executive Order asks us to look at this issue from different angles,” Yellen outlined a series of questions. “We need to see these important questions in the context of the central role the dollar plays in the global economy.”

“As citizens of this country, we derive significant economic and national security benefits from the unique role that the dollar and US financial institutions play in the global financial system. The President’s Executive Order asks us to consider whether and how the issuance of a public CBDC would support this role.”

“I don’t know what conclusions we’ll come to yet, but it should be clear that issuing a CBDC would likely represent a major design and engineering challenge that would take years to develop, not months. So I share the President’s urgency to expedite the investigation into the challenges and opportunities that a CBDC could pose for American interests.”

She also explains that technology-driven financial innovation is by definition cross-border and requires international collaboration, which brings her back to the last point.

Fifth lesson: cooperation

“We need to work together to ensure responsible innovation. We have all been involved in many of the most groundbreaking innovations in our history: policymakers and entrepreneurs, advocates, scientists, inventors, and citizens,” said Yellen.

“Opinions about digital assets vary widely. On the one hand, some advocates talk as if technology is being transformed so radically and beneficially that governments should back off altogether and let innovation take its course. On the other hand, skeptics see little or no value in this technology and related products and advocate a much more restrictive government approach. Such divergent perspectives are often associated with new and transformative technologies.

Yellen believes that the role of government is to ensure responsible innovation. By that he means innovation that works for all Americans, national security interests and protects our planet. It should also contribute to economic competitiveness and growth.

“Such responsible innovation must be the result of a thoughtful dialogue between the public and private sectors and take into account the many lessons we have learned throughout our financial history.”

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